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Full text of "History and operation of fraternal insurance"

JOHN JORDON UPCHURCH 

Founder of the Ancient Order of United Workmen 



HISTORY AND OPERATION OF 

FRATERNAL INSURANCE 



BY 

WALTER BASYE 
Editor The Fraternal Monitor 



PUBLISHED BY 

THE FRATERNAL MONITOR 
ROCHESTER, N. Y. 



Copyright, 1919, 

by 
WALTER BASYB 



CONTENTS 

PAGE 

Frontispiece John Jordan Upchurch, Founder of 

the Ancient Order of United Workmen. 
Preface. 
Chapter I : The Fraternal System. 

The First Society. Protection of Dependents. Growth. 

The System Today. All Inclusive.* Operating Plans. 

Other Features. Influence in Social and Political 

Life. A Permanent Future 9 

Chapter II : Origin of Organized Beneficence. 

Burial Societies of Ancient Times. The Guilds of 
Western' Europe. English Friendly Societies. Social 
and Secret Fraternities. Life Insurance Companies.- 
American Benefit Societies 22 

Chapter III : Development of Operating Plans. 

Organization. Ritualistic Form of Work. The Certifi- 
cate. Medical Examinations. Collection of Assess- 
ments. Payments to Beneficiaries 41 

Chapter IV : The Benefit Fund. 

The First Fund. Relief Fund of the A. O. U. W. 
Benefit Funds of Other Societies. Measures for Safe- 
ty. Statutory Requirements 54 

Chapter V: Co-operative Organizations of Socie- 
ties. 

National Fraternal Congress. Associated Fraternities 
of America.- National Fraternal Congress of America. 
Federated Fraternities. American Fraternal Con- 
gress. Canadian Fraternal Association 69 

Chapter VI : National Fraternal Congress Table of 

Mortality. 

Sources of Mortality Observations. American Expe- 
rience Table. A Mortality Table for Fraternal Socie- 
ties. 'National Fraternal Congress Table of Mortality. 
-Testing the N. F. C. Table. Level Rates. Step Rates 

and Modifications; Accumulation Table 91 

3 



441044 



FRATERNAL INSURANCE 



Chapter VII : Statutory Legislation and State Su- 
pervision. 

National Supervision. Early Legislation. Uniform Bill. 
"Force Bill." Mobile Bill. New York Conference 
Bill. Influence of the Fraternal System in Legislation. 108 

Chapter VIII : The New York Conference Bill. 

Text of the Fraternal Law of the Land 133 

Chapter IX : Analysis of the New York Conference 

Law. 

Definitions. Exemption. Benefits. Liens on Certifi- 
cates. Extended and Paid-Up Protection. Benefici- 
aries. Who May Become Members. Benefit Certificate. 
Adequate Reserve Fund. Deferred Payment of Bene- 
fits. Investments. Safeguard for the Benefit Fund. 
Method of Organizing a Society.- Powers Retained by 
Established Societies. Mergers. Licenses. Admission 
of Foreign Societies. Service of Process Upon Societies. 
Meeting Place of Supreme Lodge. Officers Not Per- 
sonally Liable for Benefits. Laws Cannot Be Waived. 
Benefits Not Attachable. Filing of Amendments. An- 
nual Reports. Valuation. Valuation in the Mobile Bill. 
Valuation in the New York Conference Bill. Pub- 
licity for Valuation Reports.- Extra Collections to Meet 
Deficiency. Liens to Meet Deficiency. Provisions to In- 
sure Future Security. Section 23b. Examination of 
Societies. Liquidation. Power Limited to Attorney 
General. 'Examination of Foreign Societies. No Ad- 
verse Publications. Revocation of License. Exemp- 
tion of Certain Societies. Exempt from Taxation. 
Penalties 156 

Chapter X : Factors in Successful Operation. 

Attaining Solvency. Readjustment. "New Blood" The- 
ory. Methods of Readjustment. Importance of Class- 
ification. Whole Life Protection at Level Rates. Vari- 
ous Forms' of Certificates. Withdrawal Equities. 
Whole Family Protection.- Women Fraternalists. 
Sphere of the Actuary. Reserved Right to Assess. 
Representative Form of Government. Future of the 
Fraternal System 190 



PREFACE 

This volume has been written for the purpose of giv- 
ing the fraternal insurance world a convenient statement 
of its principles and plan of operation. On several occa- 
sions the author has been asked if there was such a work 
in existence. It was needed in explaining the system to 
those who should have a better understanding of fra- 
ternal accomplishments and aims. Field men of the 
various societies often feel the need of greater informa- 
tion regarding the institution which enlists their support. 
Legislators who consider bills regulating fraternal bene- 
fit societies sometimes ask for a work presenting the 
essential features of operation. Judges of our courts 
of law who must render decisions in cases which involve 
fraternal insurance, although quite fully informed by 
opposing counsel of the immediate issues in such litiga- 
tion, occasionally search the libraries for a volume that 
will explain the underlying features of the business. And 
the fraternalists who comprise the great army working 
for the system, gaining support from it, using it to pro- 
tect their dependents, enjoying the opportunities it gives 
for fellowship and social life and who believe in its 
works, are patrons of literature on the subject. This 
work has been written to meet the requirements of all 
of these. 

More pretentious books have been written on the tech- 
nical phases of fraternal operation, and there have been 
published histories in more detail of portions of the sys- 
tem's period of accomplishment, but so far as the author 
knows there has been no volume published which con- 

5 



6 FRATERNAL INSURANCE 

templates and treats the subject from both the historical 
and technical standpoints. This work views the several 
phases. It attempts to give a straightforward account 
of the founding, development, readjustment and present 
status of the fraternal system. It presents a simple ex- 
planation of the various phases of operation. As a his- 
tory, it deals with causes and effects ; as a treatise, with 
sound principles. Considerable attention is given to stat- 
utory legislation because the evolution of fraternal pro- 
tection was coincident with the adoption of laws which 
fraternalists drafted and supported. 

The fraternal system has been led by splendid men and 
women, some brilliant, some forceful, some picturesque 
and some far-sighted. The fact that they were engaged 
in a noble cause probably has influenced their lives for 
higher ideals. They have been militantly good. But 
while the fraternal system has been rich in strong per- 
sonalities, the biographical data is scarce. This is 
due to the fact that many have been content to let their 
works speak to future generations. If the departed 
leaders had written memoirs the system would be richer 
today. Let us hope that the leaders of today will devote 
themselves to autobiographies and reminiscences of their 
times. Let us hope that some writer 'of the future will 
give a description of personalities. For these reasons 
and because the work herewith is intended only as an 
exposition of the working plans of the movement the 
seeker for biography will be disappointed. Proper cred- 
it has been given, however, to those leaders who were 
instrumental in achieving great results. 

In preparing this volume the author was assisted by 
having ready access to the writings of experts and lead- 
ers, as well as the bound volumes of The Fraternal Mon- 



PREFACE 7 

itor. My debt to Abb Landis in this respect is a big one. 
Mr. Landis became identified with the fraternal system 
as an actuary at the beginning of the great movement to 
attain enduring plans of operation. His espousal of 
correct principles was marked by intense sincerity, and 
the soundness of his ideas has been proven by the pass- 
ing of time. The exigencies of the moment sometimes 
caused him to make compromises, but I believe that at 
no time did he ever deflect from the highway of progress 
which led to the ultimate goal of sound protection. Oth- 
er writers have set down facts and opinions which were 
of value in producing this work, and my gratitude to 
them is hereby expressed. A bibliography is given on 
another page. 

It is also a pleasure to make public acknowledgment 
of the suggestions so kindly made and changes recom- 
mended by Arthur S. Hamilton, the author's partner in 
guiding the destines of The Fraternal Monitor. Mr. 
Hamilton is indeed a generous associate and loyal friend. 

The above remarks explain some of the causes that 
led to the attempt to write this volume and they acknowl- 
edge my debt to others. Its chief purpose is to aid the 
fraternal system. May it be of value in the years to 
come. Its merit must be judged by the readers, and with 
the hope that they will consider it worth while I place it 
in their hands. THE AUTHOR. 



BIBLIOGRAPHY 

M. W. SACKETT : Early History of Fraternal Beneficiary Socie- 
ties in America. 

The Fraternal Monitor: Bound volumes; 1890 to 1919. 

ABB LANDIS: Friendly Societies and Fraternal Orders. 

CARLOS S. HARDY : Fraternal Insurance Law. 

JOSEPH A. DEBOER : "Historical Sketch of Life Insurance ; " 
The Business of Insurance; published by The Ronald Press 
Company, New York. 

The Fraternal Monitor: Fraternity, a Compilation of Ad- 
dresses. 

Proceedings of the Supreme Lodge, Ancient Order of United 
Workmen. 

New York Conference Bill; published by the National Fra- 
ternal Congress of America. 

ABB LANDIS: The Criterion; bound volumes. 

National Fraternal Congress; Proceedings, 1886 to 1913. 

Associated Fraternities of America; Proceedings, 1901 to 
1913. 

National Fraternal Congress of America; Proceedings, 1913 
to 1918. 

ABB LANDIS: Life Insurance. 

MILES M. DAWSON: Elements of Life Insurance. 

HENRY MOIR: Life Assurance Primer. 

ABB LANDIS and GEORGE DYRE ELDRIDGE: National Fraternal 
Congress Table of Mortality. 

GEORGE W. MILLER : "National Supervision ; " from the Pro- 
ceedings of the World's Insurance Congress, San Francisco, 
1915. 

The Fraternal Monitor: Statistics Fraternal Societies, pub- 
lished annually. 



HISTORY AND OPERATION OF 
FRATERNAL INSURANCE 

CHAPTER I 
THE FRATERNAL SYSTEM 

Social forces sometimes have their beginnings in crude 
and humble circumstances. The plan by which a group 
of people achieves progress is usually the product of 
some man whose genius is uncovered by a desire to help 
his fellow men. The yearnings of kindred spirits find 
expression in the idea. It is seized and embraced, and a 
great social movement starts rolling through time, light- 
ening the burdens of humanity and raising the world to 
a higher plane. It is recorded in history that Abraham 
Lincoln, when a boy, visited a slave mart in New Or- 
leans. The sights he saw there violated his concepts of 
justice and right, and he vowed that if ever the power 
were placed in his hands, he would smite the system of 
slavery. That idea found expression in the Emancipa- 
tion Proclamation. 

A few years after the close of the Civil War a master 
mechanic in the railroad shops at Meadville, Pennsyl- 
vania, conceived the idea of organizing his fellow labor- 
ers to introduce his "ideas of right and justice between 
man and man." The evening of October 27, 1868, John 
Jordan Upchurch organized Jefferson Lodge, No. 1, 
Ancient Order of United Workmen. This was the be- 
ginning of the fraternal system, which today is com- 

9 



10 t FRATERNAL INSURANCE 

posed of more than two hundred fraternal benefit socie- 
ties of the United States and Canada, having over one 
hundred twenty thousand subordinate lodges and over 
nine million members. 

The First Society. Although other co-operative bene- 
fit organizations were in existence, and a few of these 
societies are still operating, the first society of what is 
known as the American fraternal system was the Ancient 
Order of United Workmen. Competent authorities de- 
clare that the chief purpose of Upchurch in organizing 
the Order was to provide workingmen with a union on 
a broader scale than the trades unions of that time. In- 
deed, the constitution written by the founder declares 
among its objects for "one united body for the defense 
and protection of their (those regularly employed in any 
branch of the mechanical arts) interest against all en- 
croachments." Also, "the elevation of labor to that 
standard it is justly entitled to." Another object was 
"to discontinue strikes except where they become abso- 
lutely necessary for their protection and then only after 
all efforts of adjustment have failed." Thus, we see 
that the A. O. U. W. was created for artisans, with the 
interests of laboring men foremost in the plan. The 
insuring of its members was an afterthought. 

We observe that the central idea upon which the Order 
expanded was a minor consideration at the time of 
organization. In a body of workingmen united for mu- 
tual welfare, however, it was natural that the protec- 
tion of dependents should be included in their plans. In 
1868 life insurance was a luxury for the few. Life 
insurance companies had been operating a little more 
than twenty years and their policies were sold chiefly 
to business men and manufacturers. No appeal was 



THE SYSTEM 11 

made to laborers. Besides, a mighty prejudice against 
the companies existed; first, on account of religious be- 
lief that to insure was to fly in the face of Providence; 
and second, on account of the numerous failures of life 
insuring organizations. The scandals caused by failing 
companies led the founders of the A. O. U. W. to believe 
that only a mutual society controlled by its members 
could insure lives with a small expense for management 
and an honest administration of funds. 

Protection of Dependents. Death benefits were es-. 
tablished by Article XVII of the Constitution of the 
first lodge of the Ancient Order of United Workmen. 
It was worded as follows : "There shall be established 
when the Order numbers one thousand members an in- 
surance office and policy issued, securing at the death 
of the member insured not less than Five Hundred Dol- 
lars, to be paid to his lawful heirs." 

However, the life insurance plan lay dormant until 
October 6, 1869, when a meeting of the Provisional Grand 
Lodge was held. An "Insurance Article" was adopted. 
It provided that each member pay one dollar to an in- 
surance fund of the subordinate lodge. Upon the death 
of a member this fund was to be used to pay the funeral 
expenses and the remainder delivered to his family or 
heirs. In addition, whenever a death occurred the Grand 
Lodge was to demand the insurance funds in other sub- 
ordinate lodges, forward the money to the recorder of 
the deceased member's lodge, and said lodge was re- 
quired to "see that the entire sum thus placed in its 
hands shall be properly and judiciously applied for the 
benefit of the family or heirs of the deceased." The 
benefit for any deceased member was to equal in dollars 
the number of members who had contributed to the 



12 FRATERNAL INSURANCE 

insurance fund, except that not more than two thousand 
dollars should be paid on any one death. This was the 
principle upon which the fraternal system endured until 
it was readjusted upon rates based on mortality tables. 
In reality, it was a post-mortem contribution, except that 
the members contributed an assessment in advance to 
guarantee the prompt payment of death benefits, and 
additional assessments were levied when the benefit pay- 
ments exhausted the fund. The first payment was for 
$265 to the widow of Warren P. Lawson, who died in 
1871. at Jamestown, New York. 

Millions of dollars were contributed by members of 
fraternal benefit societies on this plan, and the proceeds 
were paid to bereaved families and heirs mainly widows 
and orphans who were without other funds. The families 
that have been kept intact, the widows who have been 
saved from drudgery, and the children who have been 
educated and trained and started on life's journey as 
useful and self-respecting men and women, present a 
record for fraternalism that deserves to be extolled by 
every friend of humanitarian progress. 

Growth. The Ancient Order of United Workmen 
prospered. Jefferson Lodge, No. 1, became a thriving 
and influential organization. In January, 1870, a second 
lodge was organized at Corry, Pennsylvania, and a third 
was instituted soon after at Franklin, Pennsylvania. 
Then the society spread rapidly to other communities in 
the State, and the Provisional Grand Lodge was sup- 
planted by the Grand Lodge of Pennsylvania, organized 
December 24, 1870, at Corry. It was incorporated by 
an Act of the State Legislature, approved March 9, 1871, 
by Governor John W. Geary. There was also an Unin- 
corporated Grand Lodge, composed of eight subordinate 



THE SYSTEM 13 

lodges. Intense rivalry between these Grand organiza- 
tions was manifest until their merger in 1873. The Grand 
Lodge of Ohio was organized in 1872, and Kentucky 
in 1873. Also in that year came the organization of the 
Supreme Lodge in Cincinnati, Ohio, at which time the 
Degree of Honor, an auxiliary, was instituted. The 
Grand Lodge of Indiana was organized in 1873, and by 
that time pioneer work had been done in Iowa, New 
York and West Virginia. From this beginning, the 
Order spread rapidly throughout the United States. In 
1877 the Supreme Recorder reported that a subordinate 
lodge had been established in Canada. 

These details of the early history of the Ancient Order 
of United Workmen form an excellent basis for com- 
parison with the results that have been achieved since 
that time and which will be presented shortly. Although 
representatives of six grand lodges were in attendance 
at the Supreme Lodge session of 1874, the total member- 
ship of all grand lodges was but 4,200. 

Some students of fraternal history question the state- 
ment that the A. O. U. W. was the pioneer fraternal 
benefit society because of the fact that several fraternal 
organizations writing insurance today were founded be- 
fore 1868. In Statistics Fraternal Societies, published 
annually by The Fraternal Monitor, six older organiza- 
tions are listed, and the first of these was organized 
March 4, 1854. M. W. Sackett, in his volume, Early 
History of Fraternal Beneficiary Societies, declares that 
investigation "has fully convinced the writer of this 
history that none of these societies at the date of their 
inception could be classed as fraternal beneficiary 
societies, as the special significance of that term implies. 
The ingrafting of the distinctive feature of insurance or 



14 FRATERNAL INSURANCE 

protection through the medium of lodge organization was 
of later date." The discussion of this question probably 
will always induce controversy. However, the fraternal 
world almost universally accords the A. O. U. W. the 
honor of being first, and October 27, 1868, as the date 
of founding the fraternal system. Under the direction 
of the National Fraternal Congress of America a great 
celebration was held in August, 1918, at Philadelphia, 
in commemoration of the fiftieth anniversary of the 
founding of the fraternal system, and John Jordan 
Upchurch was acclaimed the founder. 

The fact withstands argument that this society was 
the first to expand. It aroused the public to a realization 
of the benefits of fraternal co-operation and it was fol- 
lowed into new territory by other organizations which 
prospered nearly as well as the one which blazed the 
trail. With the advent of the United Workmen, fraternal 
insurance became popular. Before it came, fraternal 
benefits were practically unknown. For these reasons it 
is generally acknowledged that the A. O. U. W. was the 
pioneer society. 

The popularity of fraternal protection soon spread 
over the Nation. Many societies were organized on 
similar plans. It would be impossible to compile a com- 
plete list of the others. Many have disappeared from 
the records, if not from memory. Some have merged 
with other societies. Others failed. But all served a 
useful purpose. The failures were due to their un- 
scientific plans of operation and not to dishonesty of the 
officers. Of the societies that are active fifty years after 
the founding of the system, twenty-six were organized 
in the decade between 1871 and 1880. From 1881 to 
1890 came forty-one new societies that are still in exis- 



THE SYSTEM 15 

tence, and from 1891 to 1900 there were seventy-eight. 
jThis was the enthusiastic decade, when the orders in- 
creased their memberships with surprising ease and 
speed, and new fraternities met with prompt success. 
f This period also saw the beginning of the movement for 
adequate rates and sound methods in operation. From 
1901 to 1910 the societies organized and still going 
totalled thirty-two. The societies organized in the last 
decade have not been in existence long enough to have 
achieved any measure of success. 

The System Today. There has been no halt in the 
progress of fraternal benefit societies. Friends of the 
system are so accustomed to having the annual records 
of former times outdistanced by new reports that statis- 
tics of today will be known to be obsolete tomorrow. 
Achievements in the fraternal field since the first benefit 
society began business fifty years ago have created a 
mighty movement with impressive figures. According 
to the latest available statistics the membership of nearly 
200 societies was over 9,000,000. Of these, over 400,000 
were social members, leaving the remainder, over eight 
and one-half million, carrying benefit certificates. There 
were over 120,000 subordinate lodges. 

Each of these subordinate bodies is a center for frater- 
nal intercourse of people who have personal and neigh- 
borly interests in common. A lodge of one of these 
societies can be found in the most crowded portion of 
any city or in the wildest waste of earth wherever man- 
kind toils and lives, in the United States, Canada and 
other countries. Through an officer of such a lodge the 
members contribute to the common fund used for paying 
benefits to dependents of deceased members at home and 
abroad. And it is through the lodge that brotherly inter- 



16 FRATERNAL INSURANCE 

est and kindness is expressed a mighty factor in keeping 
the system alive. 

The insurance carried on the lives of their members 
by these societies, according to latest reports to State 
insurance departments, was over $9,500,000,000. The 
certificates vary in size from $250 to $5,000, with the 
usual maximum amount issued at $3,000. The average 
amount of protection carried in each of more than eight 
million benefit certificates is a little in excess of eleven 
hundred dollars. This is a low average, caused by the 
inclusion of societies paying funeral benefits in small 
amounts. It is the belief of the author that the average 
sized certificates issued by societies writing fraternal 
insurance are about fifteen hundred dollars. These are 
too small to fulfill a man's obligation to his family, but 
they provide funds for the dependents to tide over the 
period when money is needed most. However, the 
average member belongs to more than one society, and 
he sometimes carries insurance issued by commercial 
companies. 

The total income for these societies in a recent year 
was $164,848,635, and their disbursements were $140,- 
149,963, and $113,763,279 of the expenditures were for 
benefits. 

The difference that year between the income and the 
outgo, a sum of $24,698,672, therefore was added to 
surplus funds. And these increasing surplus funds are 
held for the purpose of paying benefits in the future. 
The assets of the fraternal benefit system at the time of 
this writing are close to $400,000,000. When it is con- 
sidered that until recent years most of the societies oper- 
ated on the assessment-as-needed plan, with which a 
surplus was considered unnecessary, this sum represents 



THE SYSTEM 17 

a splendid accomplishment. In the few years since first 
fraternal operation accepted the reserve plan, the ac- 
cumulation of more than three hundred million dollars 
is a mighty testimonial of increasing strength. 

In the fifty years of its existence the fraternal system 
has paid over three billion dollars in benefits. Societies 
paying death benefits have over $2,400,000,000 to their 
credit, and those paying disability benefits for sickness 
have distributed over $650,000,000 among their members. 

All Inclusive. The wide popularity of fraternal 
protection is caused by the fact that the societies have 
not been confined by racial, religious or other bonds. 
The system is all inclusive. While the societies restrict 
entrants by some measure of classification, we have 
organizations for almost all races and creeds. The 
largest are those which require only that applicants shall 
be men of legal age and good character. Then we have 
societies that admit both men and women, and there are 
those that are devoted to women exclusively. In ethnical 
qualifications there are English, Canadian, Scotch, Irish, 
French, Polish, Bohemian, Italian, Greek, German and 
other groups that have come to America to join in making 
this a cosmopolite nation. Protestants, Catholics and 
Hebrews have their distinctive organizations. 

Operating Plans. Each fraternal benefit society 
operates under a representative form of government for 
the benefit of its members, and without profit. It is 
mutual and co-operative in every respect. Absolute con- 
trol is vested in the supreme lodge, which is composed 
of delegates elected by the members. The supreme lodge 
meets in convention at stated intervals to enact laws, 
elect supreme officers and a board of directors, decide 
controversies between the members and act upon appeals 



18 FRATERNAL INSURANCE 

from decisions of the supreme officers or subordinate 
lodges. The supreme officers and directors hold office 
and conduct the business of the society by authority of 
the supreme lodge. Charters for subordinate lodges are 
granted to groups of individuals who qualify for member- 
ship and can satisfy the supreme officers that such a 
lodge would prosper in the locality in which they live. 

In transacting the business of the society the supreme 
officers rarely come in contact with the individual mem- 
bers. Distance of members from the head office and the 
large numbers on the membership rolls make this im- 
practical. Therefore the business is done through the 
subordinate lodge secretary. This officer, when elected 
by the subordinate lodge, acts as agent for the members. 
When appointed by the supreme officers or directors, he 
is agent for the society. This point is important on 
account of deciding the legality of suspensions and 
various other acts of the secretaries. The members pay 
their monthly or quarterly assessments to the secretary, 
who issues receipts for the same. He remits to the 
society the total of assessments due from the members. 
And in other matters, such as obtaining proof of death 
of a deceased member and delivering check for the 
benefits, this officer transacts the business. 

The financial management of the fraternal benefit 
society will be discussed in other chapters. A simple 
statement of the operation of the benefit fund would 
include the fact that fraternal societies reserve the right 
to assess their members as often as necessary to pay death 
claims or to maintain actuarial solvency. Under the 
present-day system, however, this fact need not frighten 
any member. The reserved right to assess is an element 
of strength, because it provides a plan for an insurance 



THE SYSTEM 19 

organization to maintain an adequate reserve when the 
unexpected happens, such as war or an epidemic. Its 
beneficent results were observed when the United States 
went into the world war; the societies permitted their 
members to go to war without imposing extra premiums, 
and the extra war mortality was provided by small extra 
assessments on the members who stayed at home. Most 
societies of the present collect specified assessments at 
regular intervals, usually one a month, and, if the rates 
are sufficient, a reserve fund accumulates. An adequate 
reserve fund guarantees that the rates need not be 
changed during the life of the member. He will be 
given whole-life protection on a level rate. 

Benefits paid by most fraternal societies are life insur- 
ance. This constitutes the great bulk of their business. 
It is mainly insurance for protection, without frills and 
investment features. A factor of strength in fraternal 
operation is that the insurance is that which will give 
the best protection for the money. Some societies pay 
benefits for sickness and accident, while a few are limited 
to funeral benefits. Old-age disability payments for 
members have become popular in recent years and a safe 
estimate would be that one-half the societies grant relief 
of some kind to their members who reach age 65 or 70. 

Other Features. The privilege of attending lodge 
and enjoying the fellowship of others is a feature of 
membership in benefit societies that should not be valued 
lightly. The lodge is the people's forum and club. Ques- 
tions of importance to the community are discussed there, 
and the social affairs are events that call together those 
who desire entertainment and recreation. The ritual 
gives an opportunity for those with dramatic ability to 
express their talents. A lodge composes a group of peo- 



20 FRATERNAL INSURANCE 

pie with mutual interests who are bent on co-operating 
for the good of all, enjoying the society of each other 
and extending encouragement and relief to those who 
have been overtaken by misfortune. There has been a 
tendency in recent years by a few societies to minimize 
the importance of subordinate lodge activity. This course 
is a mistake. The lodge has ever been the center of 
fraternal progress, and the societies which have increased 
their memberships most in recent years are those which 
have emphasized the importance of active lodges and 
good fellowship. 

Membership in a benefit society confers other privi- 
leges. There come to mind tuberculosis sanatoria and 
homes for the aged maintained by various societies, as 
well as orphan asylums. These express the benevolent 
side of fraternity. No member of a fraternal society who 
is consistent in maintaining his membership need ever 
hope in vain for a friend, because he will have many; 
he need not go without comfort in sickness, because there 
will be brother-members to look after his wants ; and he 
need never worry that his dependents will be left friend- 
less and in poverty. A society's chief purpose is to pre- 
vent such misfortunes. Once in a while we hear com- 
plaints that fraternities are unsympathetic and neglectful, 
but investigation of the facts usually shows that the per- 
sons making such charges are those who have neglected 
their fraternal obligations. Fraternity, like religion or 
a savings bank, gives most to those who put in most. And 
the best deposit in the bank of fraternity is heart-felt 
interest and support. 

Influence in Social and Political Life. The fra- 
ternal system is a potent factor in developing the social 
life of the Nation. While fraternal benefit societies are 



THE SYSTEM 21 

non-political and usually non-sectarian, they take a lively 
interest in all matters affecting the home. Fraternalists 
are essentially home lovers ; their certificates of member- 
ship are for the protection of the family. Any question 
of National, State or local importance affecting the living 
conditions of mankind are sure to be discussed in lodge. 
There is not always unanimity in opinion, but the dis- 
cussions bring forth the facts which determine the side 
upon which to take a stand. And the fact that the mem- 
bers come from various walks in life tends to broaden 
their viewpoints and sympathies. 

A Permanent Future. The fraternal system has 
endured for fifty years and it is stronger now than at 
any other time in the period of its development. It 
started with its death benefit system on an unscientific 
basis, and it went through a mighty upheaval of re- 
adjustment, yet it continued to advance. The period of 
readjustment established a condition which guarantees 
the safety of the future, and the fraternal system has 
entered a new era on an enduring plan of operation. 
Almost universal is the recognition that a reserve is 
necessary for whole life protection. Legislation in the 
various States, sought and enacted by the influence of 
the societies, requires that they operate on scientific 
plans. It guarantees solvency. It means that every 
benefit certificate will become an obligation which will 
be paid. With the marvelous progress of the past as an 
incentive, what a wonderful vista opens to the future ! 
That record was made on a precarious plan; the future 
starts on a solid foundation. 



CHAPTER II 
ORIGIN OF ORGANIZED BENEFICENCE 

In the preceding chapter was related some of the in- 
cidents connected with the birth of the American frater- 
nal system, but organized protection has a deeper and 
older origin. In other times and among other peoples 
similar movements existed. While their plans of opera- 
tion were different, their purposes were almost identical. 
Therefore, we must conclude that co-operation for mutual 
assistance and the protection of dependents springs from 
an inherent desire for fellowship and a fine instinct for 
security which is as old as the human race. These find 
expression in like circumstances, and their works are 
among the nobler accomplishments of mankind. 

When reaching back to antiquity we must be careful 
not to seize upon legendary accounts and twist them into 
plausible illustrations to suit our purposes. History 
records that since the dawn of time men have combined 
for mutual welfare, and the purposes of some of their 
societies were closely akin to those of the benefit socie- 
ties of today. We read that burial societies are main- 
tained by the Chinese and that these have come down 
from ages unrecorded in history. The Greeks, during 
the flush of their magnificent civilization, had burial and 
fraternal societies, and so did the Romans. In medieval 
times all of Western Europe was organized in trade 
guilds. In England the guilds developed into friendly 
societies. And the English friendly societies of the 
present are a development of and an improvement over 
the earlier organizations. I am indebted to the writings 

22 



ORIGIN 23 

of Abb Landis, that great fraternal thinker and actuary, 
for some of the following results of his researches. 

Burial Societies of Ancient Times. For several cen- 
turies before the Christian Era the Grecians possessed 
societies which paid sickness and burial benefits as a 
natural result of their fraternal co-operation in other 
endeavors. They organized to celebrate religious festi- 
vals, and the common interest engendered in their associa- 
tion together caused them to invent plans to render 
assistance to members who were visited by misfortune. 
This led to the custom of providing suitable burials for 
the members. The investigations of Abb Landis convince 
him that these Grecian societies grew up as private cor- 
porations recognized by the State, which had laws, offi- 
cers, degrees, contributions and benefactions, and regular 
meeting places. They were numerous in the cities. Some 
of the societies of Rhodes were Companions of the Sun, 
Sons of Bacchus, Sons of Minerva, Sons of Jupiter 
Atabyrius, and Sons of Jupiter the Savior. At Athens 
there were the Heroists, the Oregons and the Thiasotes. 
A powerful order of Greece was the Eronoi. 

In Rome there, was the Collegia. Many of the freemen 
of the Roman Empire belonged to this society. Accord- 
ing to an inscription found at Lanuvium, nineteen miles 
from Rome, a society which was organized for the wor- 
ship of Diana and Antinous, collected dues regularly 
from its members. The funds were spent for feasts and 
festivities and for the funerals of deceased members. 

The idea of organizing for mutual assistance was car- 
ried by the Romans in their campaigns of conquest to 
Western Europe and the British Isles. Although the 
Grecian and Roman societies expired with the fall of 
their civilization, there emerged in medieval times the 



24 FRATERNAL INSURANCE 

trade guilds of Western Europe. These guilds may be 
traced back to the Roman societies, and authorities agree 
that the connection is clear. Until the Reformation the 
guilds controlled all Europe. 

The Guilds of Western Europe. Historians have 
assigned the guilds of the Middle Ages an important 
influence in the development of Europe. From the fall 
of Rome until the Reformation, every village in France, 
Germany and England had its society, or several of them. 
An early trace of the guild may be found among the 
laws of Ina, a Saxon king who reigned from 688 to 725 
A. D., wherein the liability of members of a guild in the 
case of the killing of a thief was defined. Athelstan, 
who reigned from 924 to 940 A. D., ordained that the 
contributions made by guild members should be a "fine 
loaf" by each upon the death of a brother. The loaves 
were sold and the proceeds used to pay priests for say- 
ing masses and singing psalms for the repose of the 
dead. The word guild, or gild, means payment, or tribute. 
From the very earliest existence of such organizations 
it was understood that their purpose was to collect dues 
from the members for their common use. 

The guilds belonged in three clearly defined classes. 
There was a semi-religious guild that provided for burial 
ceremonies, the trade guilds which controlled industry 
and operated somewhat in the manner of the trades 
unions of our time, and the merchant guilds, whose object 
was to hold monopolies and seek privileges, such as free- 
dom from tolls. These guilds became in .many cases the 
governing bodies of the borough, and often were courts 
of justice. The laws of that period indicate that it was 
accepted as a matter of course that everybody belonged 
to guilds. 



ORIGIN 25 

The purposes of guilds included the various advantages 
which men could attain by organizing. In the History 
and Development of Guilds, Brentano says that their 
objects included "every exercise of Christian charity, 
and therefore above all things, mutual assistance of 
the guild brothers in every exigency especially in old- 
age, in sickness and in cases of impoverishment, if not 
brought on by their own folly and of wrongful im- 
prisonment, losses by fire, water or shipwreck, aid by 
loans, provision of work, and lastly, burial of the dead. 
It included further, the assistance of the poor and sicki 
and the visitation and comfort of prisoners not belong-; 
ing to the guild." 

In some countries, particularly England, women as' 
well as men were admitted to membership in some of the 
guilds. People high and low, the rich and poor, freeman, 
villein and serf, sat side by side in the meetings. It is 
related that "Kings Henry IV, VI, and VIII, and many 
princes and lesser members of the nobility in England 
were members of local societies." During the Reforma- 
tion most of the guilds in the Protestant countries were 
suppressed on the alleged ground that they "were un- 
christian and inculcated superstitious ideas in the minds 
of the people." In England they were superseded by the 
friendly societies, which have endured to the present 
time. 

The effect of guilds on the people of the Middle Ages 
was the factor that probably led them out of the stag- 
nation which had settled upon humanity. The people 
were groping for a means to advance. Patriotism rested 
lightly upon the individual for the reason that govern- 
ments failed to protect their subjects from enemies and 
from the thieves and highwaymen that infested country 



26 FRATERNAL INSURANCE 

roads and even village streets. People naturally turned 
to each other for protection. Their guilds protected their 
lives and their property interests, settled disputes and 
provided proper burial. 

English Friendly Societies. The great benefit sys- 
tem of today in England is administered by friendly 
societies. These are organizations having similar pur- 
poses and methods of operation to those of the American 
fraternal benefit societies. They have descended from 
the friendly societies that followed the guilds of the 
| Middle Ages and have undergone a period of readjust- 
'ment similar to that of our societies. The friendly 
societies are solvent, are a fixture in the life of the peo- 
ple and their future is secure. One has existed for 750 
years. The chief purpose of friendly societies is to pay 
sickness and funeral benefits, and the maximum risk on 
any one life is not over $1,000. American fraternal 
benefit societies are mainly life insuring organizations, 
with certificates rarely exceeding $5,000, although a few 
pay limited sickness and accident benefits. 

The transformation of guilds into friendly societies is 
difficult to describe. The English guilds began to decay 
in the fifteenth century. Corruption amongst them was 
not uncommon, and the privileges of membership were 
abused. In the sixteenth century, by the passing of Acts 
27, 31 and 37 of Henry VIII, and Act 1 of Edward VI, 
enabled the king to confiscate the property of guilds 
and monasteries. In the sixteenth and seventeenth cen- 
turies some of the societies which had survived confisca- 
tion and retained a semblance of an organization were 
reformed. New societies were started on the general 
scheme of the guilds, but modern features were included. 
George F. Hardy, a noted English actuary, wrote in 



ORIGIN 27 

1887 as follows: "The friendly societies existing at 
the close of the eighteenth century appear to have been 
very similar in the nature of their operations to those 
of the present day. It is difficult to estimate, with any 
degree of certainty, the number of societies or their 
aggregate membership, but there is good reason for be- 
lieving that they were at least as numerous in proportion 
to population as at the present day. Sir P. Colquhoun, 
in 1796, estimated the number of societies in London at 
600, with a membership of 70,000, while Sir F. M. Eden, 
five years later, considered that the whole kingdom might 
number 7,200 societies, with a membership of over 
600,000." 

From a recent report of the Chief Registrar of Parlia- 
ment, ordered by the House of Commons, we learn that 
there are about 10,755 of these societies in England, 
with a total membership of more than 7,000,000. One 
society has 865,000 members; another 472,000. The 
oldest has existed 750 years, probably beginning as a 
guild. The next oldest has lived 560 years. About 
eighty organizations of this kind, still in operation, were 
founded before the nineteenth century. Some of the 
oldest and the dates of their organization are as follows : 
Count de Winton Society, 1168; Lord Evans' Society, 
1358; Deacons' Benefit, 1687; Hand in Hand, 1696; 
Norman in London, 1702; Earl Skilton, 1704; Society of 
Linton, 1708; Ovington of Northumberland, 1711 ; Gold- 
smith of London, 1712 ; Mutual Brothers of London, 
1717; Hope of London, 1720; Canterbury Friendly 
Society, 1737; Royal Artillery, 1752; Whittenton Men's 
Society, 1754; Charitable Society, 1759; Amerly Clothiers 
Society, 1760; Old Spread Eagle Society, 1762; Wheat 
Sheaf Friendly Society, 1763 ; Kinksley Friendly Society, 



28 FRATERNAL INSURANCE 

1765; Meriden Friendly Society, 1768; Scottish Widows, 
1815. 

Toward the end of the eighteenth century the social 
features of friendly societies became so pronounced that 
their beneficial mission was almost forgotten. Feasting 
and drinking became so general that they were sometimes 
called in derision, "Free and Easies." A marble mason, 
named Bolton, became the leader of a movement to re- 
form the societies. In 1812, at Manchester, he organized 
the improved Order of Odd Fellows' Club. His success 
is described by Abb Landis as follows : "His scheme was 
to abandon the 'free and easy' proceedings and make an 
effective provident institution, adapted to the wants of 
artisans whose occupations called them into various parts 
of the kingdom. Probably from this idea came the word 
'Independent,' introduced into the name of his organiza- 
tion as the 'lodges' at different places were to be 
independent of each other ; while the 'Manchester Unity' 
conveyed the other idea of general centralization in 
supervision and co-operation. The Manchester Unity 
Independent Order of Odd Fellows, was the pioneer of 
modern friendly societies and today leads all others in 
the world in number of members and financial strength." 

Modern friendly societies are voluntary associations 
for the purpose of giving relief to their members in 
sickness, in old-age, or other infirmity, and to their 
families at their death. They experienced an unscientific 
beginning, disappointment for the members by reason 
of changes in operation, readjustment of rates and 
finances. Mr. Landis says that the Manchester Unity, 
because of its age, its size, its success, its mortality and 
sickness experience, its errors and reforms, and its most 
comprehensive conduct in operation, has a history that 



ORIGIN 29 

covers all the ground necessary to be turned in order to 
reap the benefits from a study of past action and present 
prosperity of friendly societies. The course followed by 
American fraternal benefit societies in striving for sol- 
vency was almost identical to that traveled by friendly 
societies many years before. The beginnings, errors, 
disappointments, reforms and successes were very much 
alike. They followed scientific laws which are always 
applicable and dare not be broken without a penalty. 
This applies to all peoples in all ages. 

We have heard it said that the American system was 
copied from the English system. This is an erroneous 
statement. We have competent authority to prove that 
the founders of the first American society were unaware 
of the English system or its methods. They started in 
total ignorance of scientific principles. Had they been 
acquainted with the history of friendly societies they 
could have avoided at the beginning many pitfalls that 
awaited them. The only scientific life insurance plans 
with which they were acquainted were those of the com- 
mercial companies, and there was so much corruption 
and dishonesty in their management in the decade be- 
,'tween 1861 and 1870 that the fraternalists were repelled 
by the record. For this reason the founders of the 
fraternal system avoided all the earmarks of life insur- 
ance companies when making their plans. Life insurance 
had such an unsavory record at the time that anything 
smacking of the methods of the companies was im- 
mediately condemned. When the first American society 
was organized the English societies had about sixty-five 
years' practical experience in readjustment and solvent 
operation. 

The first legislation affecting modern English friendly 



30 FRATERNAL INSURANCE 

societies was Sir George Rose's Act, the 33 Geo. Ill, 
c. 54, passed June 21, 1793. It established supervision 
and a few safeguards for management. It required the 
submission of rules, or their alteration, to the justices 
at Quarter Sessions, who had power to confirm or re- 
ject. The objects of the society had to be specified, and 
a dissolution could take place only with the consent of 
the justices. 

In 1818 the first bill presuming to set up a standard 
of scientific rates was introduced in Parliament. It re- 
quired tables and rules to be submitted to "persons 
skilled in arithmetical calculations," which was struck 
out of the Act passed the following year. 

A review of the Act of 1819 by Mr. Landis is as fol- 
lows : "This Act provided that rules and tables of all 
future societies should both be confirmed by the jus- 
tices at Quarter Sessions; and, moreover, contained the 
important provision that such justices should not con- 
firm or allow any table of payments or benefits, or any 
rules dependent upon or connected with the calculations 
thereof, until it shall have been made to appear to such 
justices that the said tables and rules are such as have 
been approved of by two persons at least, known to be 
professional actuaries or persons skilled in calculation, 
as fit and proper according to the most correct calcula- 
tion of which the nature of the case will admit." 

The Act of 1829 repealed all former legislation af- 
fecting friendly societies, but retained the essential fea- 
tures in a consolidated statute. It prescribed regulations 
governing the organizing of new societies. The most 
important provision was that requiring reports every 
five years of sickness and mortality experience to be 
made to the clerk of the peace, by whom they were to 



ORIGIN 31 

be transmitted to the Secretary of State and laid before 
Parliament. It was stated in the Act that the object 
was to collect data "by which tables of the payments and 
allowances dependent on the duration of sickness and 
probability of human life may be constructed, the pres- 
ent existing data of these subjects having been found 
imperfect and insufficient." 

The legislation so far reviewed and the Acts of 1834 
and 1846 were effective in getting new societies started 
on a scientific basis, but the old societies had withstood 
successfully the efforts to obtain statutes to reform their 
plans. Consequently, as time went on, they began to 
show the effects of operating on rates inadequate to 
accumulate reserves. Big deficiencies in the funds to 
pay promised claims resulted. Therefore, in 1849, there 
was introduced in the House of Commons "A Bill to 
make better provision for the Certifying the Tables of 
Contributions and Payments of Friendly Societies, and 
for ascertaining from time to time the Solvency of Such 
Societies." Several petitions followed, and these, with 
the Bill, were referred to a Select Committee of the 
House, which conducted the investigation of 1850. 

Mr. Nieson, a noted actuary, was one of the witnesses 
examined, and stated his belief that friendly societies 
as they had existed until a recent date before the inves- 
tigation "were generally unsound, and chiefly so from an 
inadequate amount of contributions being required by 
their tables, at least by those having tables." Some so- 
cieties had been collecting assessments which were not 
based on mortality tables, and those "established 20 or 
30 years ago upon inadequate data may now, on inves- 
tigation, find that they had all along been charging one- 
half less for some of the particular benefits than they 



32 FRATERNAL INSURANCE 

ought to have charged ; and many societies have proved 
this by experience. They have broken down in conse- 
quence of inadequate contributions. Some societies be- 
ing alarmed by a gradual deficiency taking place year 
after year in their funds, have had recourse to a great 
many expedients by which to prop themselves up." 

The Select Committee reported to the House of Com- 
mons that it had examined sixteen witnesses, and it had 
learned that by the exertions of benevolent persons, and 
by means of a more extensive and accurate collection 
of statistical materials, better information of the calcu- 
lations and principles upon which such societies ought to 
be based had been obtained and diffused. "Attention has 
been much turned to the defects inherent in the old 
clubs," continued the report, "and many societies on a 
sounder system have been established; still it is stated 
by the secretaries and others who have attended the 
committee that in the great majority of friendly societies 
and clubs at present existing, an accurate examination 
of their accounts should show that the rate of contribu- 
tions is not sufficient to enable them to pay the benefits 
insured thereby; that in many instances they have been 
compelled to reduce or suspend their allowances; and 
those societies which have hitherto kept their engage- 
ments have probably been enabled to do so by a con- 
tinual introduction of new members, so that the unsound- 
ness of their tables has remained unnoticed. As a guide, 
then, and a safeguard to the ignorant, it has often been 
suggested, and was pressed upon the committee by some 
of the witnesses that the government should cause model 
tables to be constructed, and should force an adherence 
to them." 

The report of the Select Committee sounds like a de- 



ORIGIN 33 

scription of the American societies as they were when 
adequate rates and solvent operation were being discussed 
so acrimoniously in this country. History repeats itself. 
The conditions of the English societies described in 1850 
were almost identical to the conditions of our societies 
of 1910. 

However, the recommendations of the Select Com- 
mittee were ignored, and the Act of 1850 became a stat- 
ute of minor considerations, except that a limit was 
placed on the amount of benefits for children's insur- 
ance. And the Acts of 1855 and 1858 were likewise 
silent as to remedies for the trouble. 

In 1870 the situation in regard to the friendly socie- 
ties had reached such a state that a Royal Commission 
was appointed with instructions to investigate thoroughly 
and exhaustively the subject and report the findings to 
Parliament. The investigation lasted five years. The 
Commission's report resulted in the Act of 1875, which 
placed the friendly societies on a scientific plan of opera- 
tion, headed towards solvency and a permanent future. 
The recommendations were concise and complete and 
verified the report of the Select Committee in 1850. The 
Royal Commission suggested the following : "We attach, 
however, much more importance to properly conducted 
periodical valuations, and to corrections made from time 
to time in the tables according to the results of those 
valuations, than to the original tables themselves; and 
we consider that such valuations should be made compul- 
sory upon all registered societies." 

The Act of 1875 contained the following among its 
most important provisions: "(1) the maintenance of the 
voluntary principle, as respects registration and the actu- 
arial certification of tables; (2) the continuance of the 



34 FRATERNAL INSURANCE 

quinquennial and annual returns; (3) the limitation of 
benefits, especially for infants' assurances, this pro- 
vision also applying to industrial assurance companies; 
(4) authorizing the treasury to issue regulations from 
time to time, and the power conferred on the registrars to 
appoint inspectors, when duly requested, to inquire into 
the management of societies, and call general meetings 
of the members; (5) the compulsory valuation of all 
registered societies every five years, and the provision 
for the appointment of public valuers by the treasury,, 
who might undertake such valuation; (6) the recon- 
struction of the Registry Office, resulting in the appoint- 
ment of an actuary to the registrar." (Abb Landis: 
English Friendly Societies.) 

The law required valuation with publicity, but no re- 
quirements for soundness, thus permitting the societies 
to work out their salvation under the weight of public 
opinion and the desire to become enduring. 

Until 1896 this Act was in force and remained un- 
changed except for a few minor amendments. By 1896 
the friendly societies had attained a splendid condition, 
were operating on the scientific plans induced by gov- 
ernment regulations and practically all were solvent. A 
revision was made of the enactments at that time, re- 
taining the constructive features, and the Friendly So- 
cieties Act was passed by Parliament August 7, 1896, 
and remains in force today. 

It will be observed that the period of readjustment 
for English societies was longer than the entire expe- 
rience of American societies. They might have shortened 
the time had British lawmakers been more prompt in 
enacting the legislation recommended by the earlier com- 
missions, and which would have required them to adopt 



ORIGIN 35 

reliable tables and test their experience by valuation. 
The readjustment of friendly societies was delayed be- 
cause lawmakers were dilatory, and it is presumed that 
this was caused by the influence of societies which 
wanted to be left alone. The quicker results attained in 
the United States may be credited to the fact that fra- 
ternalists themselves drafted the various legislaive bills 
and supported them in the various legislatures. How- 
ever, the English people were on pioneer ground, while 
we have had their experience to guide us. 

Social and Secret Fraternities. The orders which 
exist for purely fraternal purposes are in no way con- 
nected with the fraternal benefit system. The leading 
secret orders are much older than any benefit society in 
America. However, the purposes of the different classes 
of fraternities are closely related and great numbers of 
persons are members of various kinds of fraternities. 
Benefit societies are more closely related to each other, 
and this co-operation obtains for them the things neces- 
sary to their progress as insurance organizations. 

The Masonic order has a membership of nearly two 
million in the United States and Canada. Grand lodges 
of these countries are in affiliation with the Grand Lodges 
of England, Ireland, Scotland, Cuba, Peru, South Aus- 
tralia, New South Wales, The Netherlands, Belgium, 
Sweden, Norway, Denmark, Victoria, and the Masonic 
bodies of Germany and Austria. 

The membership of the Independent Order of Odd 
Fellows, which comprises the Grand Lodges of Aus- 
tralasia, Germany, Denmark, Sweden, Switzerland and 
the Netherlands, is considerably over two million. The 
American organization numbers over 1,600,000. In 
England there is the Manchester Unity of Odd Fellows 



36 FRATERNAL INSURANCE 

with over 1,500,000 members, and with which the Amer- 
ican organization is not in affiliation. 

A number of purely benefit organizations are com- 
posed entirely of Masons or of Odd Fellows, but are 
not recognized by the main orders. While the Masonic 
order protects its members and their widows and or- 
phans, no specified benefits are paid. The Odd Fellows 
order pays a certain funeral benefit. 

Several organizations constituted as fraternities have 
insurance funds within the membership. Among these 
are the Supreme Lodge Knights of Pythias, and the 
Knights of Columbus. 

Other societies have been organized for fraternal, pro- 
tective and other purposes and are among the most suc- 
cessful orders. Some of these are: Independent Order 
of the Rechabites, Order of Good Templars, Loyal Order 
of Moose, Fraternal Order of Eagles, Improved Order 
of Red Men, Benevolent and Protective Order of Elks, 
Order of Owls, United Ancient Order of Druids, An- 
cient Order of Hibernians, Junior Order United Ameri- 
can Mechanics, Foresters of America, Patriotic Order 
Sons of America. 

Life Insurance Companies. In many countries and 
in many ages . individuals have been willing to assume 
risk on lives of people as a business venture. In earlier 
times there was no data by which the business could be 
put on a scientific basis, and the premiums in such deals 
were so big that they partook more of gambling than of 
protection. Such business as was transacted was not 
recognized by the State and no general institution was 
instituted. 

A royal charter was granted in 1706 to "The Amicable 
Society for a Perpetual Life Assurance Office" in Lon- 



ORIGIN 37 

don. This organization and a few others started on 
uncertain careers. In 1756 "The Society for Equitable 
Assurance of Lives and Survivorships" were projected 
in England, and granted more liberal policies for the 
premiums paid. By the beginning of the nineteenth 
century the laws of mortality were comprehended, and 
eight companies for insuring lives were doing business 
in Great Britain. In 1844 more than 140 companies and 
societies were flourishing, and Great Britain was the 
leading nation in the insurance world. 

In 1843 the Mutual Life Insurance Company, of New 
York, issued its first policy, and this was the beginning 
of commercial life insurance in the United States. Be- 
fore 1850 a few other companies were organized. How- 
ever, the oldest company in America is the Presbyterian 
Ministers' Fund, of Philadelphia, which was organized 
in 1759. It insures ministers of all evangelical denomi- 
nations. 

Life insurance companies in America grew from the 
beginning and met with wonderful success. They con- 
tinued to grow during the Civil War, 1861 to 1865, a 
period when other business enterprise was blighted. The 
Americans have built an institution that surpasses the 
other life insurance companies of the world combined. 
The late Joseph A. DeBoer, a company president with 
notable abilities, ascribes this achievement to the follow- 
ing: "Because it is especially adapted to the needs of 
our people, because it is especially fostered as a busi- 
ness by the character of our political institutions, 
and, finely and particularly, because it has received the 
impulse of an extraordinary body of managers and 
agents, who have controlled and directed its sales and 
adjustments and through whose zeal, ability and unre- 



38 FRATERNAL INSURANCE 

mitting energy, life insurance has been advanced to a 
national position of the utmost political and economic 
importance." 

It should be set down here that a large share of the 
popularity of life insurance companies is due to the 
educational work done by fraternal benefit societies. 
Hundreds of thousands of persons have first been in- 
sured in a fraternity and later have taken insurance 
policies. Many of them would never have been insured 
if they had not been taught the principles of protection 
by fraternal societies. They learned that their depend- 
ents should have their future safeguarded against pov- 
erty. In this way the agents of life insurance companies 
have had much of their educational work done for them 
by the societies. 

American Benefit Societies. That the founders and 
leaders of the first important American benefit society 
had no knowledge of the history and experience of Eng- 
lish friendly societies is a fact credited to Myron W. 
Sackett, who was for thirty-six years Supreme Recorder 
of the Ancient Order of United Workmen, and further- 
more was associated with the leaders in the early years 
when the insurance plans of the Order were formulated. 
Writing a reply to correct a statement that the form and 
plans of the A. O. U. W. were modeled after those of 
the two affiliated friendly societies of Great Britain, the 
Foresters and the Manchester Unity of Odd Fellows, 
Mr. Sackett said: "From personal official connection 
with the management of the A. O. U. W. in the early 
years of its history and intimate relationship with the 
founders of the Order, the writer * * * can assert 
with positiveness that neither himself or they had any 
knowledge at that time of the existence of the two Brit- 



ORIGIN 39 

ish societies above mentioned. If in some ways the 
lines of operation adopted followed those of the foreign 
societies it was unknown to them, and we think we could 
say with truthfulness that to the date * * * , 1880, 
little, if any, knowledge was had by any one in official 
position in the fraternal beneficiary societies then in 
existence as to the laws or history of the British socie- 
ties this information was disseminated at a later pe- 
riod." 

Therefore, let it be understood that the American 
fraternal system had its beginning as a result of the 
fraternal desire of men to co-operate for their mutual 
welfare and happiness, and that the benefit plan they 
introduced followed an innate prompting to protect their 
dependents. Victor Hugo says that the voice of con- 
science is as thunderous as the sea ; it cannot be ignored. 
Another voice that speaks through the hearts of men 
with equal force is the voice of Fraternity ; it has behind 
it the power of love expressed through hundreds of gen- 
erations and is closely allied to conscience. It is the 
voice that tells men to unite for the protection of their 
kind and their own. When John Jordan Upchurch 
launched a fraternal benefit society he provided a way 
for men to obey that voice. They followed the simplest 
plan, the first scheme that occurred to them. It was 
unfortunate that ignorance prevented them from taking 
profit from the accumulated experience of sixty-five years 
of reform by English friendly societies. It is possible, 
had they known the scientific principles of operation, 
they would have rejected them as being too com- 
plex for their purposes. The result was that the Ameri- 
can societies had to undergo a period of readjustment 
similar to the experience of fraternalists across the sea. 



40 FRATERNAL INSURANCE 

However, they persevered and their triumph is in sight. 
Soundness and solvency will be the chief characteristics 
of fraternal operation in the future. 



CHAPTER III 
DEVELOPMENT OF OPERATING PLANS 

Although the purposes of the fraternal benefit sys- 
tem remained essentially the same throughout its growth, 
the plans upon which the societies operated underwent 
a remarkable development. The founders of the first 
society visualized the results they desired to attain. 
They were unacquainted with the principles of the life 
insurance business and, had they possessed a working 
knowledge of that science, we may hold the belief that 
they would have rejected such principles. They were 
too complicated for their plans. Anyway, the life in- 
surance business was in bad repute in the years imme- 
diately following the Civil War because of numerous 
frauds and failures. 

The fraternalists desired to establish a worthy insti- 
tution in a simple way. They organized their insurance 
plan as a mutual co-operative society, the members each 
paying an equal amount as contribution to a fund for 
the family of a member who died. It was indeed simple 
and easy to explain when a member died, each of the 
others were to contribute a dollar. This is known as 
post-mortem assessment insurance. It is workable as 
long as the members hold together. 

The history of the Ancient Order of United Work- 
men shows that the early members were not troubled by 
actuarial calculations, the accumulation of a reserve, nor 
the increased cost of insurance as a result of rising mor- 
tality with advancing age. Actuaries and their calcu- 
lations were unknown, a reserve was believed for a great 

41 



42 FRATERNAL INSURANCE 

many years to be necessary only for commercial insur- 
ance, and they had a wholesome respect for and faith in 
brotherly co-operation to satisfy the demands of the 
future. The ties which bind men together in an unsel- 
fish enterprise were deemed to be sufficient to guaran- 
tee prompt responses to assessment calls, to inspire hon- 
est and efficient handling of the funds and to promise 
capable administration of the Order's business affairs. 
And the fact that the fraternal system has been free 
from the scandals of misappropriated funds and dishon- 
esty in management is potent evidence that their faith in 
mankind was justified. 

However, the plans of the founders were in almost 
constant revision from the beginning. It was a natural 
evolution. The introduction of systematic methods, one 
after the other, kept the organization in turmoil. As the 
Order grew, new men with new ideas came to the fore 
and demanded attention. As the membership increased, 
the plans were elaborated to accommodate the enlarged 
scope of the work. During the years of debate and 
legislation the Society builded a code of laws, rulings 
and precedents, many of which are landmarks in opera- 
tion for all societies today. The insurance articles were 
barely in force before changes were made, and these 
were enlarged throughout the years, until there came 
the period of readjustment for all societies, which put 
the fraternal system on a program to achieve a sound 
and enduring future. Not only the operation of benefit 
funds, but the schemes of administration and legislation 
went through a process of improvement. The rituals 
were revised to correspond to the original and distinc- 
tive purposes of a benefit society. The benefit fund was 
subjected to checks and safeguards. Collections of 



DEVELOPMENT OF PLANS 43 

assessment were made business transactions by which 
misunderstandings were obviated. Medical examinations 
were elaborated until they became a careful selection 
of risks. Payments to beneficiaries were made promptly 
and engendered confidence in the Order. The certificates 
of membership were soon believed by members to be ab- 
solute promises to pay maximum amounts of benefits so 
conscientiously and religiously did the Order pay the 
insurance on time. This last was a feature, while credit- 
able and noble, that led to future misunderstandings. 
By their mutuality the members were self-insurers and 
did not enjoy contractural rights, a point that took years 
of litigation to settle. As we proceed with our study 
of the fraternal system we shall become impressed with 
the influence of the early development of the A. O. U. 
W. upon the operation of today. The chief factors 
of strength today in the societies were given form and 
substance in the very earliest fraternal experience. 
i Organization. The first benefit scheme was con- 
structed with the smallest unit as the beginning. This 
was the local lodge, and it was not subordinate at that 
^time because there was no higher body to which it could 
pay allegiance. The lodge was the body consisting of the 
individual members. Then came the grand lodge, which 
was designed to have jurisdiction over a State, one of 
the commonwealths of the United States. Above this 
was placed the supreme lodge, which had jurisdiction 
over the grand lodges, the subordinate lodges and the 
members. We must admit that the plan of the organi- 
zation was not original with the founders of the first 
society, because various social secret fraternities, well 
known at that time and today, were organized on al- 
most identical lines. The idea was meritorious and has 



44 FRATERNAL INSURANCE 

endured practically without change to this day, except 
that now many of the societies dispense with the grand 
lodge and make the subordinate lodges directly respon- 
sible to the supreme lodge. 

With each organization it was necessary to have a 
complement of officers to administer the business affairs. 
Thus we have officers corresponding to president, vice- 
president, secretary, treasurer and the various posts 
necessary to carry on the business and ritualistic work 
of supreme, grand and subordinate bodies. The titles 
held by the members in the various offices usually orig- 
inate, either by custom, or from the allegory upon which 
the ritual is based, and they sometimes convey a descrip-. 
tion of the duties of the office. In this manner are per- 
petuated many posts of honor known in mythology and 
ancient history, as well as organizations in former times 
with admirable plans for protecting their people. 
Even various groups in the animal kingdom, known for 
their loyalty to each other and the protection of their 
young, have inspired fraternalists to build fanciful ritu- 
als, and these emphasize principles of love, co-operation, 
thrift and loyalty to which members can subscribe. They 
teach patriotism, religion, charity and loyalty. 

While the administration of fraternal benefit societies 
has been carried on through a plan of organization 
adopted at the beginning, the experience of a half- cen- 
tury has clothed the system with various requirements 
which must be possessed by every society operating un- 
der the statutes regulating such organizations. Laws of 
the various States impose the following essentials: (1) 
A society must be without capital stock; (2) it must be 
"organized and carried on solely for the mutual benefit 
of its members and their beneficiaries;" (3) it must be 



DEVELOPMENT OF PLANS 45 

conducted "not for profit;" (4) it must have a lodge 
system; (5) its lodge system must employ and be con- 
ducted upon and with "ritualistic form of work ;" (6) it 
must have a representative form of government; (7) it 
must pay death benefits ; and (8) the beneficiaries must 
come within a restricted class named in the law. 

Ritualistic Form of Work. John Jordan Upchurch 
was the author of the first ritual used by the Ancient 
Order of United Workmen. He was a Mason. The 
secret work of that fraternity impressed him with the 
desirability of binding together the members of the new 
society by solemn obligation, teaching them the tenets 
of an unselfish brotherhood, and impressing upon them 
by a dramatic ceremony the advantage of leading upright 
lives. The Upchurch ritual consisted of Jour degrees 
and was used in initiating the first members of the Or- 
der. 

In the' history written by the late M. W. Sackett, Su- 
preme Recorder, and which is in reality his memoirs, 
the author relates that the ritual was changed and re- 
vised several times in the early years. In 1871 a new 
ritual was adopted, and it consisted of three degrees. 
But this did. not prove satisfactory and, when trie su- 
preme lodge was ' instituted in 1873, an entirely new 
ritual was adopted. This was amended in 1874. 

A ritualistic form of work has been a characteristic 
of all the societies organized since the beginning. Much 
of the work has been secret and the rituals of many so- 
cieties have been among their chief assets. Beautiful 
and practical lessons in brotherly love have been taught 
to thc-se who have taken part or have witnessed the 
ceremonies. The most pleasing form of entertainment 
is "that in which people may take part as actors or par- 



46 FRATERNAL INSURANCE 

ticipants, mingling and co-operating with others for the 
same purpose, and to this may be ascribed the attrac- 
tion of ritualistic work. It enables the members to 
develop their dramatic and oratorical talents, and the 
lessons taught by the ritual are impressed upon their 
minds for life. In addition to being an asset, the rituals 
of some societies have been their most distinguishing 
characteristic, and fraternal history shows that the or- 
ganizations possessing the most striking ceremonials 
have been among those which have made the greatest 
progress. 

The mummery and secrecy of fraternal societies have 
drawn severe criticism from persons who could not un- 
derstand their value. The fraternal system has met with 
great antagonism from persons who believed, because 
the meetings were secret, that evil was being concocted. 
Much of this feeling was an inheritance of the agita- 
tion against secret fraternities of a hundred years ago 
and, because benefit societies had adopted some of the 
forms of the older orders, they were subjected to the 
same criticism. However, the good works of benefit so- 
cieties have justified their existence, and the excellent 
standing of the people engaging in ritualistic ceremonies 
has dulled the criticism. 

The Certificate. The certificates of membership in 
fraternal benefit societies today are concerned chiefly 
in explaining the provisions for benefits. Some are elab- 
orate specimens of the engraving art and vie with the 
impression created by gold bonds or other securities. 
They are designed to reflect the high character of the 
benefits they confer. Often they are called po\|cies, on 
account of the fact that the payment of cash benefits 
corresponds to the proceeds of a life insurance policy 



DEVELOPMENT OF PLANS 47 

issued by a commercial company. Yet these certificates, 
now elaborate and complete, have developed from a very 
simple plan. 

When the first Insurance Fund of the Ancient Order 
of United Workmen was arranged the members were 
enrolled in the insurance book kept by the recorder of 
the lodge, and each member was entitled to designate 
the person or persons he chose to "recognize as his legal 
heir or heirs, and have the same changed at any time 
he may so desire." No benefit certificates were issued. 

Early in 1872, however, plans for operating the bene- 
fit feature assumed a business-like character. The maxi- 
mum amount of a benefit to be paid on the death of a 
member was $2,000, with the minimum amount depend- 
ing on the yield of an assessment of one dollar on each 
member. A certificate, or "Policy of Insurance," was 
issued to each member as follows : 

$2,000. No 

ANCIENT ORDER OF UNITED WORKMEN. 
POLICY OF INSURANCE. 

This is to Certify, That Brother is a Master 

Workman Degree Member of Lodge, No , of 

, Ancient Order of United Workmen, and is, at the 

date of this Certificate, entitled to all its rights, privileges and 
benefits; and providing he is in good standing at his death, ac- 
cording to the rules and regulations of the Order, His Life is 
Insured by the Order, and on his decease the sum ef Two Thou- 
sand Dollars will be paid to such person or persons as he may, 
whilst living, direct, as provided by the rules of the Order. And 
he now directs that in case of his death it shall be paid 
to 

Given under the seal of the Lodge at this 

day of , 187... 

Master Workman. 

Recorder. 



48 FRATERNAL INSURANCE 

This simple document was a promise of the things 
which the Order wanted to do for the member. It con- 
tained a promise of benefits, but it failed to specify the 
restrictions. It will be noted that the first certificate 
was a definite promise to pay $2,000 when, according to 
the Society's law, the beneficiaries were to receive a 
smaller sum if the membership was less than two thou- 
sand. The first sums paid were less than that amount. 
However, the membership increased so rapidly and the 
Order was so successful that the obligation for $2,000 
was fulfilled in the favor of the beneficiaries of more 
than a hundred thousand members and paid over $225,- 
000,000. All jurisdictions of the A. O. U. W. to date 
have paid death benefits amounting to more than $400,- 
000,000. It was not long until an improved certificate 
was issued and, as experience dictated, the various pro- 
tective clauses were added. 

The certificates issued today by fraternal benefit 
societies specify the amount of the benefit and the con- 
tribution rates, and that the charter, or articles of incor- 
poration, the constitution and laws of the society, the 
application for membership and medical examination 
signed by the applicant, shall constitute the agreement 
between the society and the member, and a certified copy 
of each of these shall be delivered to the member as 
evidence of the terms and conditions ; and any changes, 
additions or amendments to the charter or articles of 
incorporation, constitution or laws made or enacted sub- 
sequent to the issuance of the benefit certificate shall 
bind the member and his beneficiaries in all respects as 
though they were in force at the time of the application 
for membership. The laws give the society the power 
to levy extra assessments as needed to meet deficits in 



DEVELOPMENT OF PLANS 49 

the benefit fund, or to add to the reserves in order to 
attain solvency. The certificate is not assignable and 
is in force only from the time of its delivery and as long 
as the member pays assessments as levied and obeys the 
society's laws. A certificate is only a part of the con- 
tract. 

Medical Examinations. Selection of risks by a com- 
petent medical examination did not occur to the found- 
ers of the first society. Certain restrictions were speci- 
fied, however, and these limited the admissions to a 
healthy class. Among these were that the new member 
must be a white male, twenty-one years of age, of good 
moral character, "able and competent to earn a liveli- 
hood for himself and family, and a believer in a Supreme 
Being, the Creator and Preserver of the Universe." By 
a tacit understanding among the members no person 
above sixty years of age could be admitted. A realiza- 
tion of the extra hazard on the lives of older members 
is shown by the adoption of an initiation fee of ten dol- 
lars for those above fifty, while those below that age 
were admitted for five dollars. And a man "able and 
competent to earn a livelihood for himself and family" 
was likely to be in good physical condition. 

Later the insurance articles were amended to require 
that each member making application for the third de- 
gree should be examined by a physician "as to his 
physical ability, a statement of which shall be handed 
to the recorder, and the applicant shall bear the expense 
of such application," and the member was not permitted 
to join the benefit fund until he had received the third 
degree. In one of the numerous revisions of the laws 
made in the early years the age limit was reduced to 
fifty years and applicants were required to produce a 



SO FRATERNAL INSURANCE 

certificate from a regular practicing physician, stating 
that the applicant was of "sound bodily health." Num- 
erous deaths among newly admitted members in Ohio 
brought the subject of medical examinations to the at- 
tention of the officers of the Supreme Lodge of the A. 
O. U. W. and, in 1874, a medical examiner's report, 
copied from a form in use by a mutual life insurance 
company, was adopted. From that time forward a re- 
port of a competent medical examination accompanied 
each application for membership and was included as a 
part of the contract. 

Fraternal benefit societies have made good use of the 
medical examination, and the result has been the acquir- 
ing of a splendid class of risks. The mortality has been 
low, causing a reduction in the cost of insurance for the 
younger ages. The fact that most fraternalists come 
from the laboring and farming classes has contributed 
to the excellent mortality experience enjoyed by the 
societies. 

Had no restrictions been placed upon the admission 
of new members, physically impaired persons would have 
rushed to join and a speedy end to fraternal protection 
would have followed. When the first form for a medi- 
cal examiner's report was discussed in the Supreme 
Lodge it was opposed vigorously on the ground that the 
Order was drifting away from the broad humanitarian 
ideas of the founders. In this respect it has been well 
that the charitable zeal of some of the early members 
was tempered by the good sense of the leaders. 

Collection of Assessments. The loose method of 
collecting contributions for the benefit fund was one of 
the surprising evidences of unbusiness-like methods em- 
ployed by the first lodges. Each member, upon join- 



DEVELOPMENT OF PLANS 51 

ing, paid a dollar into the fund and the money remained 
in the possession of the lodge. When a death occurred 
the grand lodge was notified. Thereupon all subordi- 
nate lodges in the jurisdiction were called upon to send 
the funds in their possession to the grand lodge, and the 
grand lodge sent the total, if not exceeding $2,000, to 
the subordinate lodge of which the deceased was a mem- 
ber, and by it the money was paid to the beneficiaries. 
Whereupon, a new assessment of one dollar on each 
member was called, and the fund in each lodge was there- 
by re-established. If two deaths occurred close together 
the money in the fund was divided, the beneficiaries of 
each deceased member receiving one-half and were 
obliged to wait for the proceeds of another assessment 
for the remainder. Several faults were found in this 
scheme. The grand lodge officers were unable to esti- 
mate the yield of an assessment, and the exact amount 
to be received by the beneficiaries was unknown until 
all subordinate lodges had reported. In addition, some 
of the subordinate lodge recorders were lax in simple 
business methods. 

The plan was improved by requiring that the grand 
lodge administer the insurance or benefit fund. Assess- 
ments were then made at regular intervals and the money 
was forwarded to the grand lodge office as soon as col- 
lected. The common practice of fraternal benefit socie- 
ties today is to collect assessments monthly, payment 
being made by the members of the lodge secretary or 
collector, and this officer forwards the proceeds to the 
head office. It has features analogous to the plan of 
the industrial life insurance companies. The chief dif- 
ference is that agents, selected by and working for the 
companies, hunt up the policyholders to make collections, 



52 FRATERNAL INSURANCE 

while the lodge collector is elected by the members and 
receives their contributions at lodge meetings or some 
convenient office. The expense of collecting monthly 
premiums by industrial companies is considerable, and 
the voluntary plan under which members of fraternal 
societies contribute their assessments is a decided fac- 
tor in making fraternal insurance cheaper than the other. 

Payments to Beneficiaries. The first payment of a 
benefit by a society in the fraternal system was to the 
widow of Warren P. Lawson, who was a member of the 
Ancient Order of United Workmen at Jamestown, N. 
Y., at the time of his death in 1871. Collections on the 
current assessment amounted to $265, indicating that the 
Grand Lodge had 265 members contributing to the insur- 
ance fund. 

Only a few members died before the Order was able 
to pay two thousand dollars to the beneficiaries of each, 
as provided in the Articles of Insurance. The member- 
ship grew so rapidly that the various grand lodges and 
the Supreme Lodge, the latter having jurisdiction in 
States not organized as separate bodies, were soon pay- 
ing the full benefit on each death. 

Revised laws adopted by the Supreme Lodge in 1874 
provided a form for a Death Report Blank to be used 
in reporting the death of each member and which was 
required to be filed at the office of the grand lodge be- 
fore the debt was paid. This form provided for a state- 
ment by the subordinate lodge officers as to the standing 
of the deceased member at the time of his death, his 
age and residence, his beneficiaries and their age and 
residence ; also personal evidence as to the identity of the 
deceased, a report from the physician attending at the 
time of death and that of the undertaker officiating at 



DEVELOPMENT OF PLANS 53 

the burial. This blank varied but little from the one -in 
use in recent years. 

Fraternal societies have ever been liberal in paying 
the benefits promised by their certificates. They have 
rarely attempted to scale or compromise the amounts due 
beneficiaries, and they have assisted those to whom 
money is due in obtaining it. An ideal of fraternalism 
is to give to each member his just due. No better occa- 
sion can be used by the societies to exemplify this ideal 
than in the treatment of the beneficiaries of a member 
after his death. It is then that faith in the order is put 
to a test. In the payment of death claims a society must 
fulfill expectations, not only in meeting financial obli- 
gations, but by rendering assistance in obtaining proof 
and in paying promptly. This is the fraternal way. 

Many instances have been cited of money spent by 
societies to assist beneficiaries in establishing lawful and 
complete proof of death. Subordinate officers and mem- 
bers have been instrumental in sweeping away doubt. 
It is not the intention of fraternities to carp on tech- 
nicalities. It is their purpose to give to members and 
their beneficiaries all that they are entitled to receive 
and to make it easy for them to get it. 



CHAPTER VI 
THE BENEFIT FUND 

Under the almost universal scheme of operation of 
fraternal benefit societies each organization possesses a 
benefit fund from which death and disability claims are 
paid. It is hedged about with restrictions and safe- 
guards. It is considered a sacred trust and has the solici- 
tous care of the board of directors, which alone has 
power to authorize disbursements, and then only on proof 
properly presented. Once a contribution has been made 
to the benefit fund the money ceases to be regarded as 
the property of the society or the members ; it belongs to 
the widows and orphans of the future and the members 
who become disabled. Under the safeguards provided 
by fraternal operation absolute safety has been pro- 
vided. 

The benefit fund has been the object of discussion 
and legislation, and insurgent movements have resulted 
in societies where the contending parties could not agree 
on plans for its solvency. The benefit fund is the cen- 
ter of the hopes of members that their beneficiaries will 
be left a competency after death. The condition of the 
fund shows the status of the society whether or not it 
is actuarily solvent. In the early period of fraternal 
development a society's benefit fund probably contained 
little more than enough money to pay a month's death 
claims; the money was replaced each month by new 
assessments. But with the growing ambition of the 
societies to give whole life protection on level rates it 
became necessary to create a reserve belonging to the 

54 



THE BENEFIT FUND 55 

benefit fund. Today a million dollars added to the 
benefit fund of some society is a casual incident. 

The chief question for fraternalists to ask themselves 
is : When I die will there be enough money in the bene- 
fit fund to pay my beneficiaries? Contingent on this 
question is another: Will there be enough money in 
the benefit fund to pay the beneficiaries of all the 
members? In order to give a satisfactory answer 
the science of actuarial calculation has been developed 
in fraternal circles and legislation requiring adequate 
rates for their contributions has been adopted by 
State legislatures. With careless disregard of what 
the future has in store, a great many members have 
refused to give the question intelligent consideration. 
Their motto has been : Let well enough alone. Some 
prefer the temporary protection given by current cost 
plans; they are satisfied with the cheap protection 
of the present, and when the rising mortality cost 
increases their rates they will drop out. Sometimes 
they feel that if the society has paid its claims in 
the past, that by some ingenious method it will continue 
to do so in the future. They believe that if the order 
is commercially solvent able to pay its obligations of to- 
day that all is well. The sensible member on such a 
plan wants temporary protection and he expects nothing 
more than that for which he is paying; he knows that 
the cost of his insurance will increase as he grows older 
and his mind is prepared to meet the advance. 

Considerations to be scrutinized in a study of the bene- 
fit fund are the rates of contribution paid by members, 
the mortality cost experienced, the ratio of actuarial solv- 
ency shown by the valuation exhibit and the measures 
taken to attain actuarial solvency. 



56 FRATERNAL INSURANCE 

The First Fund. As already related in this work, 
the benefit fund under the plan of the first society con- 
sisted of a single assessment and the money remained in 
the hands of the subordinate lodge recorders until de- 
manded by the grand lodge for the purpose of paying 
a death claim. Each death exhausted the fund, but it 
was renewed by another assessment. Each member, 
upon an assessment call being made, without distinction 
on account of age or length of membership, paid an 
equal amount one dollar. 

The method used in administering this fund is ex- 
plained best by the Insurance Article adopted in 1874 
by the Grand Lodge of Pennsylvania, Ancient Order of 
United Workmen, in which section five outlined the 
procedure to be followed upon the death of a member: 
"It shall be the duty of the subordinate lodge of which 
he was a member to notify officially by blank form of 
death notice the grand recorder of the State, who shall 
on the first day of the following month notify each sub- 
ordinate lodge in his jurisdiction, when the insurance 
fund on hand in each subordinate lodge shall immediately 
be forwarded (the same being one dollar for each valid 
policy, and such sums as may have been received for 
policies renewed) to the grand recorder. Each subordi- 
nate lodge shall then make an assessment of one dollar 
for each member; written notices of assessment shall 
be given by the financeer of the subordinate lodge to 
each member holding a policy, bearing date of not later 
than the eighth day of each month in which the notice 
was issued by the grand recorder. Twenty days from 
date of such notice by the financeer, and not later than 
the 28th day of said month in which said notice of as- 
sessment was given, any member holding a policy of in- 



THE BENEFIT FUND 57 

surance. having failed or neglected to pay said assess- 
ment into the insurance fund, shall forfeit his rights to 
said insurance." 

Additional deaths in any one month were treated as 
follows : "Should two or more notices of assessment 
be received at the same time, the subordinate lodge shall 
immediately forward the insurance fund, as hereinbefore 
provided, which amount shall pay one notice. On or 
before the first day of the following month, it shall for- 
ward to the grand recorder one dollar for each valid 
policy so held at that time under its jurisdiction for each 
remaining notice." 

This article provided that "No draft shall be made by 
the grand recorder on the subordinate lodges for insur- 
ance, until there is less than $2,000 in the insurance fund 
of the grand lodge." The rapid increase in membership 
soon permitted the Order to raise more than $2,000 on 
each assessment. Besides, the number of deaths reported 
each month fluctuated and the calling of assessments de- 
pended on the demands of mortality. Thus, when the 
membership reached ten thousand, each call would pay 
the beneficiaries of five deceased members. These were 
elemental plans for supplying the benefit fund and be- 
came the basis of the Order's system during the years 
that followed. 

Relief Fund of the A. O. U. W. As the member- 
ship was increased and more territory was covered the 
A. O. U. W. was divided into State jurisdictions, a grand 
lodge being organized in each State when the member- 
ship reached two thousand. Although the Supreme 
Lodge was the chief governing body and supervised the 
operations of the organization, each grand lodge handled 
a separate benefit fund "to avoid the risk attending the 



58 FRATERNAL INSURANCE 

accumulation of so large a sum of money as would 
result if all assessments were paid to the same officer, 
and in order that the more healthful States and com- 
munities may, as far as possible, enjoy this advantage, 
and those living in less favorable localities may bear 
their own burdens as far as practicable, separate bene- 
ficiary jurisdictions are provided." 

Early in the history of the Order some of the mem- 
bers discussed plans for an emergency fund to be held in 
reserve for unexpected mortality claims, but their pro- 
posals were given scant attention. One of these was the 
proposal in 1877 that the Supreme Lodge raise a "reserve 
beneficiary fund not to exceed one million dollars, to be 
applied to the payment of death claims in any jurisdic- 
tion when the assessments therein exceeded twenty-five 
in any one year." It received no support and died in 
the committee to which it was referred. In 1878 the 
subject was again presented to the Supreme Lodge and 
met a similar fate. 

However, the yellow fever epidemic of 1878 and 1879 
taught the Order a drastic and wholesome lesson. At 
that time the organization was prosperous and the busi- 
ness was conducted in harmony. All prospects pointed 
to a bright future. Yet this epidemic brought financial 
embarrassment and an agitation that continued several 
years. The Mississippi valley, from Memphis to the 
Gulf of Mexico, was stricken. The Grand Lodge of 
Tennessee had been set apart as a separate jurisdiction 
with a few more than two thousand members. Forty- 
seven of its members died from the disease, entailing- a 
liability of $94,000. The Supreme Lodge had jurisdic- 
tion in Mississippi and Arkansas, and its total member- 
ship was slightly in excess of two thousand, while the 



THE BENEFIT FUND 59 

deaths of members from yellow fever in these numbered 
twenty-nine a liability of $58,000. To raise these sums 
by direct assessment on the remaining members was more 
than these organizations could stand; they would have 
fallen to pieces and the beneficiaries of the deceased 
would have failed to receive their benefits. 

Special appeals for donations were sent to the Order- 
at-large. The response was generous, but the continua- 
tion of the epidemic caused a better plan to be adopted. 
An unofficial extra assessment on each member in the 
entire Order was issued by a special convention of grand 
officers of all the State jurisdictions. This call was not 
compulsory, but, to the everlasting credit of fraternity, 
it was paid in full. 

A plan to bring the various grand lodges into a closer 
financial union was needed. The laws provided that, as 
the Order grew, separate jurisdictions could be set upr 
by the States that attained a membership of two thou- 
sand, "with power to collect and disburse, within itself, 
the beneficiary fund, subject to and in accordance with 
the general laws, rules and regulations of the Supreme 
Lodge." The laws provided also that when the mem- 
bership of a separate grand lodge should fall below two 
thousand, it should immediately come under the con- 
trol of the Supreme Lodge. Therefore, upon the Su- 
preme Lodge devolved the burden of carrying the weak 
divisions of the Order. The Grand Lodge of Ohio by 
this time had reverted to Supreme Lodge control. 

The liabilities caused by the yellow fever epidemic 
were almost overwhelming, yet the Supreme Lodge pos- 
sessed no law that would require an equitable distribu- 
tion of the burden to the whole Order. In their eager- 
ness to "avoid the risk attending the accumulation of 



60 FRATERNAL INSURANCE 

so large a sum of money" as would occur if the Supreme 
Lodge administered the insurance fund, the early leaders 
of the Order had deprived it of that great factor in fra- 
ternal co-operation an equal share in the burdens of all. 
A centralization of the benefit fund was necessary to 
establish cohesion. 

As a result, the Relief Fund Law was adopted by the 
Supreme Lodge session of 1880. It provided a fund to 
consist of one dollar for each member of the Order; a 
relief board of supreme officers to collect, manage and 
disburse the fund; a maximum annual rate for each 
State jurisdiction, and relief was to be extended by the 
Supreme Lodge whenever the maximum number of 
assessments had been collected and disbursed and there 
were death claims remaining unpaid. It also provided 
for extra assessments to replenish the fund when it was 
depleted, assessments to be made in the same manner 
as calls for the beneficiary fund, and all laws relating to 
suspensions applied with equal force. It further pro- 
vided that a jurisdiction seeking relief was required 
to continue to collect its full maximum of assessments 
each succeeding year for a term of three years, and if a 
surplus existed after providing for its own death claims, 
it was to pay such surplus to the relief fund to the 
amount of the relief extended, otherwise the debt was 
to be cancelled at the end of the three-year period. The 
maximum rate as fixed in the law was based on a combi- 
nation of the death rate shown by the United States 
census of 1870 and the mortality of the Odd Fellows. 

Various changes in maximum rates and the laws gov- 
erning the collection and disbursement of the relief fund 
were made by the Supreme Lodge in the succeeding 
years, but the principle remained the same. The relief 



THE BENEFIT FUND 61 

fund was in operation for more than twenty-five years 
and expended over thirteen million dollars in assisting 
State jurisdictions. It was the first reserve of the A. 
O. U. W. and it tided the Order over many financial 
shoals. It was not a mathematical reserve and it was 
inadequate. Had it been an adequate reserve based on 
a reliable table of mortality it would have carried the 
A. O. U. W. intact as a nation-wide organization to the 
present day. Because it was inadequate it failed to per- 
form its mission when the tide of rising mortality en- 
gulfed the Order and, in consequence, dissolution came. 
Various State organizations withdrew and reorganized, 
and their plans of operation and rates were adjusted on 
a scientific basis. Some of the Grand lodges of the 
A. O. U. W. are fully 100 per cent. actUarily solvent 
today; their future is guaranteed because their contribu- 
tion rates are adequate to meet all demands. 

Benefit Funds of Other Societies. The extended 
description of the finances of the A. O. U. W. in its 
early years given in this chapter is for the purpose of 
calling attention to the insecure foundation of its bene- 
fit fund in comparison with the financial plans of the 
societies of today. The latter will be revealed in dis- 
cussing the measures taken to attain solvent operation 
and an enduring future. This condition at the very 
beginning of fraternal operation may be credited to a 
desire of fraternalists to avoid the plans adopted by 
life insurance companies. The benefit system of the 
societies was started partly as a protest against old-line 
insurance and its rapid spread throughout the country 
was due in part to a distrust of the companies. Life 
insurance managers had only themselves to blame, be- 
cause they were responsible for the great scandals in 



62 FRATERNAL INSURANCE 

management of that period. Therefore, any plan which 
smacked of commercialism, as practised by the life in- 
surance companies, was decidedly unpopular with early 
fraternalists. Thus, the accumulation of a large sum 
of money was designated an "old-line scheme," as was 
also the determination of scientific rates, the creation 
of a reserve and valuation to determine actuarial sol- 
vency. Even today some evidence of this prejudice 
crops out in fraternal discussion. In former years, 
when the fraternal system was agitated by the cam-, 
paigns for adjustment of its financial operations,, an ob- 
jection on the ground that a proposed measure was an 
"old-line scheme" was nearly sufficient to condemn it 
from the start. 

In creating the benefit funds of societies organized 
subsequent to the founding of the A. O. U. W. efforts 
were made to avoid two of the first society's weaknesses. 
These were the separation of the benefit fund into 
smaller funds according to State divisions, and the ad- 
mission of all members on the same rate without regard 
to differences in age. Many of the orders that followed 
were founded by men who had been connected with the 
first society and they were acquainted with its early 
troubles. 

In 1873 the Artisans' Order of Mutual Protection was 
organized at Washington, D. C, by Dr. J. M. Bunn, 
who had been the first deputy organizer for the United 
Workmen. The first laws of the new society were en- 
tirely the work of Dr. Bunn and in large measure fol- 
lowed the laws of the A. O. U. W., with the exception 
of eliminating the feature of separate beneficiary juris- 
dictions. 

The Knights of Honor was organized June 30, 1873, 



THE BENEFIT FUND 63 

in the City of Louisville, Ky., by Darius Wilson, who 
also had obtained his fraternal experience in the Ancient 
Order of United Workmen. He attempted to have the 
first lodge adopt a scale of assessments graded according 
to age, but his associates desired a level assessment of 
one dollar on each member and that none should be ad- 
mitted above the age of 44. They compromised on the 
one dollar assessment on ages below 44 and a graded 
scale for those joining between the ages of 44 and 55, 
the assessment at age 54 being four dollars a month. Dr. 
Wilson insisted on the creation of one widows' and 
orphans' "benefit for the whole Order, without divisions 
for the various States. 

Although the Knights of Honor later became one of 
the leading fraternal benefit societies of the United States, 
Dr. Wilson was unsuccessful in getting its leaders to 
adopt all his plans, and he therefore cast loose in 1877 
and organized a new order. This was the Royal Ar- 
canum, which, on account of its prosperity, its excellent 
class of members and its progressiveness, became one 
of the greatest of the societies. It was founded June 
23, 1877. The first constitution and laws of the Royal 
Arcanum provided for the collection of a graded rate 
of assessment, and these were, however, only to be levied 
and collected to meet the death claims as they occurred. 
Each certificate was for three thousand dollars. 

The Independent Order of Foresters was among the 
first of the fraternal benefit societies to make provision 
for a reserve fund to insure its future integrity and sol- 
vency. Its splendid financial condition of today is, how- 
ever, the result of the adoption of approved methods, 
and its plan of operation was readjusted. The Society 
was organized June 1, 1874, by Dr. Oronhyetkha. 



64 FRATERNAL INSURANCE 

These are a few of the leading societies which imme- 
diately followed the A. O. U. W., and they are cited to 
show that the fraternal system has been undergoing a 
process of improvement since its birth. Practically every 
new society introduced a feature that made fraternal 
protection better. Indeed, it was a great many years 
before new societies provided for the absolute safety of 
their benefit funds by adopting the reserve plan with as- 
sessments based on recognized tables of mortality, but 
nevertheless, the plans of new societies and the changes 
made in readjustment of old societies brought additional 
safeguards to the benefit fund and made it more likely 
that beneficiaries would receive the insurance promised 
them. 

Measures for Safety. Efforts of early leaders to 
have the societies adopt assessment rates graded accord- 
ing to the age of entry of members constituted but a 
single step in the climb towards a scientific plan of oper- 
ation. It was a necessary step and salutary, because 
even primary students in life insurance can understand 
the necessity of making older people pay more than 
younger people for their protection. Their insurance 
costs more for the reason that their period of life is 
shorter and they die with a shorter contributing period 
to their credit. That was the first lesson learned by the 
fraternalists. It took them even longer to learn that 
the payment of a thousand dollars in benefits on each 
member requires them to have a thousand dollars at the 
time. 

The adoption of graded rates of assessment would 
have been sufficient and satisfactory if they had been 
based on scientific principles if they had been big 
enough to create reserves on the level premium plan. Or, 



THE BENEFIT FUND 65 

had they desired to carry the protection without the ac- 
cumulation of considerable sums of money, they should 
have increased the rate of assessment each year. Under 
this plan the members pay the cost of insurance on the 
natural-premium method, based on the principle that the 
natural cost of insurance increases each year as the age 
of the insured increases. The level-premium plan has 
"been devised to permit the member to pay a surplus of 
contributions in the younger years, and this creates a 
reserve which equalizes the deficiency in contributions 
in the later years. The trouble with fraternal insurance 
in its first forty years was that the members thought they 
were paying on the level-premium plan when, in reality, 
they were buying term insurance which expired at va- 
rious ages, according to the sufficiency of their contribu- 
tions. It was difficult for them to understand this until 
the society to which they belonged began paying out more 
in benefits than it was collecting in assessments. There- 
fore their insurance accounts became bankrupt. The 
natural cost of insurance at their advanced ages required 
an increase in contributions, and this was usually so high 
that the average fraternalist was unable to pay it. This 
explains the cause of the disappointments and bitterness 
in regard to fraternal insurance during the period of re- 
adjustment. 

A safe benefit fund requires the observance of certain 
laws and principles if it is to fulfill its mission. If the 
protection carried is on the level-premium plan there 
must be a reserve based on a standard table of mortality. 
In the early days of fraternal operation if the members 
paid more than the current cost of protection the extra 
fund thus created was called a surplus. To the average 
mind, a surplus means something that is more than 



66 FRATERNAL INSURANCE 

necessary. Under scientific operation the members are 
required to pay more than the current cost and the addi- 
tional amounts go into the reserve, which is calculated 
on very definite rules applied to the results of mortality 
investigations. There is no surplus until reserve require- 
ments have been satisfied, which means that the contin- 
gent liabilities of the future have been provided for. A 
surplus under this condition makes a society more than 
100 per cent, actuarily solvent. 

Rates of contribution to the benefit fund, therefore, 
should be based on scientific principles. The cost of in- 
surance is known so accurately that rates can be fixed so 
they will not need changing. A member who pays less 
than the cost of his protection may think that he is get- 
ting insurance at a bargain. So he does, if he dies before 
the laws of mortality wreck the society. He actually 
wins by dying, or rather his beneficiaries win. If he 
lives long enough he will discover that his cheap insur- 
ance is a cheap product, and that which he thought was 
whole-life . protection was nothing more than term in- 
surance. 

The terms, reserve fund and benefit fund, mean nearly 
the same thing and are practically one. The benefit fund 
in one society might mean nothing more, however, than 
the sum set aside for beneficiary claims, and it might be 
insignificant as a reserve. On the other hand, the reserve 
fund of another society presupposes that an attempt is 
being made to lay aside reserves based on the mathemat- 
ical requirements. Their sufficiency is determined by 
the valuation, which is undertaken to show the actuarial 
solvency of the reserve fund. If solvent, the society is 
collecting enough for all requirements of mortality; if 
insolvent, the deficit will have to be made up from the 



THE BENEFIT FUND 67 

following sources : (1) Favorable mortality ; (2) interest 
earnings on invested funds in excess of the rate contem- 
plated by the table of mortality; and (3) increase in the 
rates of assessment. If the deficiency is large, the first 
two items will be almost negligible in recovery, and the 
only avenue to progress left open is by the third. The 
author has not considered another factor savings in 
the amount contributed for expenses because fraternal 
management is now and has even been so economical, 
and the funds designated for expenses have been so 
small, that it would be useless to attempt to build up the 
benefit fund by paring down the expense fund. 

Statutory Requirements. Uniform laws in various 
States contain specific requirements in regard to the ben- 
efit fund. These statutes provide that the various funds 
of fraternal benefit societies shall be derived from period- 
ical or other payments by the members of the society 
and accretions of such funds. The benefit fund shall be 
held, invested and disbursed for the use and benefit of 
the society, and no member or beneficiary shall have or 
acquire individual rights therein or become entitled to 
any apportionment or the surrender of any part thereof, 
except in the payment of benefits specified in the certifi- 
cates. 

The money in the fund can be invested only in secur- 
ities permitted by the laws of the State for the invest- 
ment of the assets of life insurance companies. The law 
also states that no part of the money collected for mortu- 
ary or disability purposes or the net accretions of any 
such funds shall be used for expenses. Officers and 
members of the supreme, grand or any subordinate body 
of a society shall not be individually liable for the pay- 
ment of any disability or death benefit provided for in 



68 FRATERNAL INSURANCE 

the laws and agreements of such society; but the same 
shall be payable only out of the specified funds of the 
society. Furthermore the statutes declare that every fra- 
ternal benefit society organized or licensed under the Act 
is a charitable and benevolent institution, and all of its 
funds shall be exempt from all and every State, county, 
district, municipal and school tax, other than taxes on 
real estate and office equipment. 



CHAPTER V 

CO-OPERATIVE ORGANIZATIONS OF 
SOCIETIES 

A leading organization in which fraternal benefit socie- 
ties are represented is the National Fraternal Congress 
of America. It holds a convention once a year to which 
delegates are sent by the member fraternities, and this 
meeting is for the purpose of exchanging and crystalizing 
fraternal thought, adopting policies for the good of the 
system and directing legislative activities. About a hun- 
dred societies are affiliated in the Congress. Their com- 
bined membership is close to six million and the cer- 
tificates carried represent insurance in force of about 
$7,000,000,000. 

, This organization represented the fraternal system, 
and its expressions voiced the thought and desires of 
fraternalism in the United States and Canada. It was 
organized August 21, 1913, at Chicago, 111., by a consoli- 
dation of the old National Fraternal Congress and the 
Associated Fraternities of America. These were the 
two leading organizations in the field at that time. 
! A true history of the National Fraternal Congress of 
America and the two bodies from which it sprang should 
be a recital of the efforts of those who hoped to see the 
fraternal benefit system become permanent, and it should 
be a record of the accomplishments of those who be- 
lieved that, so long as the societies provide life protec- 
tion, it should be on a scientific plan. A history is always 
a presentation of views because the activities of man- 
kind are subject to different interpretations, and the dif- 

69 



70 FRATERNAL INSURANCE 

f erences in belief within the fraternal system are still the 
basis of partisanship. Chronology supplies the facts 
which cannot be controverted, and a chronology of the 
Congress relating to dates and men is of great interest 
in view of the measures advocated during the different 
administrations. This reminds us of what Holmes said: 
"If history without chronology is dark and confused, 
chronology without history is dry and insipid." 

A complete history of the Congress would be too volu- 
minous an undertaking to present here, but it may truth- 
fully be said that without the influence of the National 
Fraternal Congress of America the fraternal benefit sys- 
tem today would not possess the chief elements of 
strength that guarantee the permanency of the societies. 
If fraternal insurance had continued to be written on the 
plan on which it started we would already have seen its 
end. This organization has taken hold of the system 
and made it what it is. And what is it? The fraternal 
benefit system is an agency for providing life insurance 
protection through its various societies for more than 
eight million people whose chief desire is to protect their 
dependents on a safe and economical basis. It is econom- 
ical because it is co-operative; there is no profit- taking ; 
and the officers work for moderate salaries. It is safe 
because sound methods of operation and adequate rates 
have been adopted. And it has a militant influence as a 
humanitarian agency because fraternity is combined with 
business. 

This portion of this work can be little more than a 
chronology because the greatest accomplishments of the 
Congress have been made in the legislative halls of the 
country, and legislation is treated in another chapter. 
The almost uniform laws on the statute books of the 



CO-OPERATIVE ORGANIZATIONS 71 

various States and Provinces were put there by the co- 
operative endeavors of fraternal leaders. These laws 
have reformed fraternal operation in the United States 
and Canada, and their evolution and improvement de- 
serve a careful description. It is to the everlasting credit 
of the leaders of fraternal societies that they carried 
through plans of their own devising for reconstructing 
the fraternal system, and the work was done at the direc- 
tion of the various organizations which were finally 
brought to a common home in the National Fraternal 
Congress of America. 

National Fraternal Congress. In June, 1886, the 
Supreme Lodge of the Ancient Order of United Work- 
men adopted a resolution providing for a committee to 
take such action as would bring about a meeting of rep- 
resentatives of fraternal benefit societies for the purpose 
of establishing a permanent organization. The com- 
mittee was composed of A. L. Levi, Minneapolis, Minn. ; 

0. F. Berry, Carthage, 111. ; Warren Totten, Woodstock, 
Ont. ; and Leroy Andrus, Buffalo, N. Y. On September 

1, 1886, the call for such a meeting was issued by Leroy 
Andrus, chairman of the committee, and on November 
16, 1886, the representatives of various societies of the 
United States and Canada met in the Riggs House, in 
the City of Washington, D. C. A permanent organiza- 
tion was effected. 

Therefore, the birth of the National Fraternal Con- 
gress occurred eighteen years after the beginning of fra- 
ternal protection. Sixteen societies were represented, 
and these had a membership of 535,000 carrying insur- 
ance protection of about $1,200,000,000. The societies 
and their representatives were as follows : 

Ancient Order of United Workmen: Leroy Andrus, 



72 FRATERNAL INSURANCE 

Buffalo, N. Y. ; Warren Totten, Woodstock, Ont. ; A. L. 
Levi, Minneapolis, Minn.; and A. L. Berry, Carthage, 
111. 

Knights of Honor: W. H. Barnes, San Francisco, 
Calif. 

United Order of Honor : A. W. Wishard, Indianapolis, 
Ind. 

Order United American Mechanics : C. H. Stein, Bal- 
timore, Md. 

Order United Friends : O. M. Shedd, Poughkeepsie, 
N. Y. 

Empire Order of Mutual Aid: J. H. Meech, Buffalo, 
N. Y. 

Select Knights, Ancient Order of United Workmen: 
Richmond C. Hill, Buffalo, N. Y. 

Endowment Rank Knights of Pythias: Halvor Nel- 
son, Washington, D. C. 

Equitable Aid Union: R. N. Seaver, Columbus, Pa. 

Knights of the Maccabees : N. S. Boynton, Port Hu- 
ron, Mich. 

Royal Arcanum: A. C. Trippe, Baltimore, Md., and 
J. Haskell Butler, Boston, Mass. 

Knights of Columbus : C. P. Kriezer, New York City. 

Knights of the Golden Rule: J. D. Irving, Toledo, 
Ohio. 

United Order of the Golden Cross: A. M. McBath, 
Washington, D. C. 

Royal Templars of Temperance : C. K. Porter, Buffalo, 
N. Y. 

Home Circle : J. H. Butler, Boston, Mass. 

The chief results of the first meeting was a declaration 
of its purposes, prescribing the requisites for eligibility 
to membership, election of officers and the appointment 



CO-OPERATIVE ORGANIZATIONS 73 

of several committees for special lines of work. The 
first officers of the National Fraternal Congress were as 
follows : 

President: Leroy Andrus, Ancient Order of United 
Workmen. 

First Vice-President : A. H. Barnes, Knights of Honor. 

Second Vice-President: John Haskell Butler, Royal 
Arcanum. 

Recording Secretary: Richmond C. Hill, Select 
Knights, A. O. U. W. 

Corresponding Secretary: O. M. Shedd, Order United 
Friends. 

Treasurer : Halvor Nelson, Endowment Rank Knights 
of Pythias. 

The first regular annual convention of the National 
Fraternal Congress was held November 15, 1887, at the 
hall of the Order of United Friends, in Philadelphia. At 
this meeting the Congress drew up a careful description 
of the class of organizations which were entitled to be 
called fraternal benefit societies and, therefore, eligible 
for membership in the Congress. The reason for this 
declaration was stated in a resolution, as follows : "There 
are a large number of associations, under various names, 
presenting to the public propositions of various charac- 
ters, that have arisen since, and are meeting with favor- 
able reception because of the success of the standard 
legitimate fraternal benefit orders, and while it is not 
the province of this Congress to either reflect upon or 
endeavor to retard the growth or prosperity, of any or- 
ganization, yet we deem it a duty to ourselves and the 
public to define what in our judgment is a fraternal socie- 
ty, and to be recognized as such." \ 

The declaration that followed served as a standard by 



74 . FRATERNAL INSURANCE 

which fraternal benefit societies and their eligibility for 
membership in the Congress was measured for many 
years. It was incorporated in the Constitution and Laws, 
and was as follows : "Resolved, That a Fraternal Socie- 
ty is an organization working under ritual, holding regu- 
lar lodge or similar meetings, where the underlying prin- 
ciples are visitation of sick, relief of distress, burial of 
dead, protection of widows and orphans, education of the 
orphan, payment of the benefit for temporary or perma- 
nent physical disability or death, and where these princi- 
ples are an obligated duty of all members to be discharged 
without compensation or pecuniary reward, where the 
general membership attends to the general business of 
the order, where a fraternal interest in the welfare of 
each other is a duty taught, recognized and practised as 
the motive and bond of the organization." 

It was further declared that any association, "how- 
ever worthy in business point of view, not possessing the 
characteristics above mentioned," could not legitimately 
be termed a fraternal society or order. 

The greatest result that has been attained by the Na- 
tional Fraternal Congress was the solidifying of frater- 
nal opinion and using it as an influence to correct the 
plan of operation from within and to educate the public 
in regard to the correct principles of fraternal benefits. 
It also used this influence to obtain sympathetic super- 
vision by State insurance departments and constructive 
legislation from State legislatures and Congress of the 
United States. 

! The landmarks of fraternal accomplishment, which 
should be credited wholly or in part to the Congress, may 
be summarized briefly. They are concerned mainly with 
legislation and will be described with greater detail in 



CO-OPERATIVE ORGANIZATIONS 75 

another chapter. At first the leading spirits in the Con- 
gress were opposed to supervision by any State author- 
ity, and especially by the departments which had juris- 
diction over the business of insurance. They were also 
opposed to statutory restrictions. But various inimical 
impositions and restrictions were imposed by a few State 
insurance commissioners who favored the commercial 
life insurance companies, and several State legislatures 
adopted statutes of a nature that made it necessary for 
the fraternalists to exert their influence to secure their 
repeal. The societies soon learned their voting strength 
and the tremendous political influence which accompanied 
it. They discovered that it was easy to oppose harmful 
bills in the legislatures, as well as to make insurance com- 
missioners listen to their requests, with the result that 
ever since their first activity in this field very few laws 
opposed to their interests have been adopted. Then it 
was discovered that the legitimate fraternal benefit socie- 
ties needed protection from the odium raised by various 
fraudulent organizations posing as fraternal orders, and 
the National Fraternal Congress applied for and obtained 
laws defining their scope of operations. 

In 1891 the Congress authorized a special committee 
to draft a Uniform Bill, and the measure prepared by 
this committee has been the model from which others 
have been written. In 1892 the Congress gave unani- 
mous consent to have such a Uniform Bill edited by a 
special committee of five and appointed President M. G. 
Jeffries a special representative to present it for approval 
to the National Convention of Insurance Commissioners. 

In 1893 it adopted unanimously a recommendation to 
secure the enactment of the Uniform Bill in States hav- 
ing no laws relating to fraternal societies. 



76 FRATERNAL INSURANCE 

In 1897 the National Fraternal Congress authorized 
the compilation of the National Fraternal Congress Table 
of Mortality, and it was adopted August 23, 1899. 

The Mobile Bill was constructed and approved with 
the National Fraternal Congress acting in conjunction 
with the Associated Fraternities of America and the Na- 
tional Convention of Insurance Commissioners at Mobile, 
Ala., September 28, 1910. This was amended December 
4, 1912, at a conference held in New York City by rep- 
resentatives of the following organizations: National 
Fraternal Congress, Associated Fraternities of America, 
Federated Fraternities, and the National Convention of 
Insurance Commissioners. The amended measure was 
named the New York Conference Bill and is today the 
fraternal law of the land. 

Annual conventions of the National Fraternal Con- 
gress have been held as given below. In each paragraph 
is given the year, the days on which the sessions were 
held, the convention city, and the man elected president, 
and his address. The presiding officer at each annual 
convention was the president elected the preceding year. 

1886 November 16; Washington, D. C. ; Leroy An- 
drus, Buffalo, N. Y. 

1887 November 15; Philadelphia, Pa.; John Haskell 
Butler, Boston, Mass. 

1888 November 20-21; New York City; John Has- 
kell Butler, Boston, Mass. 

1889 November 12-13 ; Boston, Mass.; D. H. Shields, 
Hannibal, Mo. 

1890 November 11-12; Pittsburg, Pa.; A. R. Savage, 
Auburn, Me. 

1891 November 10-12; Washington, D. C.; Adam 
Warnock, Boston, Mass. 



CO-OPERATIVE ORGANIZATIONS 77 

1892 November 15-17; Washington, D. C; M. G. 
Jeffries, Janesville, Wis. 

1893 November 15-18; Cincinnati, Ohio; N. S. Boyn- 
ton, Port Huron, Mich. 

1894 November 20-22; Buffalo, N. Y.; S. A. Will, 
Pittsburgh, Pa. 

1895 November 19-21 ; Toronto, Ont. ; W. R. Spoon- 
er, New York City. 

1896 November 17-19; Louisville, Ky.; J. G. John- 
son, Peabody, Kas. 

1897 October 5-7; Port Huron, Mich.; J. E. Shep- 
ard, Lawrence, Mass. 

1898 November 15-18; Baltimore, Md.; D. E. Stev- 
ens, Philadelphia, Pa. 

1899 August 22-25 ; Chicago, 111. ; Dr. Oronhyatekha, 
Toronto, Ont. 

1900 August 28-31; Boston, Mass.; Charles E. Bon- 
nell, Chicago, 111. 

1901 August 27-30; Detroit, Mich.; H. A. Warner, 
M. D., Topeka, Kas. 

1902 August 26-28; Denver, Colo.; J. A. Langfitt, 
Pittsburgh, Pa. 

1903 August 26-28; Milwaukee, Wis.; E. O. Wood, 
Flint, Mich. 

1904 September 27-30; St. Louis, Mo.; F. A. Falk- 
enburg, Denver, Colo. 

1905 August 23-25 ; Mackinac Island, Mich. ; A. R. 
Talbot, Lincoln, Neb. 

1906 August 15-17; Montreal, P. Q.; D. D. Aitken, 
Flint, Mich. 

1907 August 21-23 ; Buffalo, N. Y. ; A. L. Hereford, 
Springfield, 111. 

1908 August 17-20; Put-in-Bay, Ohio; C. E. Piper, 
Chicago, 111. 



78 FRATERNAL INSURANCE 

1909 August 16-19; Boston, Mass.; Thos. H. Can- 
non, Chicago, 111. 

1910 August 15-19; Detroit, Mich.; John J. Hynes, 
Buffalo, N. Y. 

1911 July 24-26; Cambridge Springs, Pa.; D. P. 
Markey, Detroit, Mich. 

1912 August 28-29; Mackinac Island, Mich.; J. D. 
Clark, Dayton, Ohio. 

1913 August 18-21 ; Chicago, 111. ; consolidated with 
the Associated Fraternities of America. 

Secretaries of the National Fraternal Congress have 
been as follows : Richmond C. Hill, Buffalo, N. Y., Re- 
cording Secretary, 1886-87; O. M. Shedd, Poughkeep- 
sie, N. Y., Corresponding Secretary, 1886-87, Recording 
and Corresponding Secretary, 1887-88; Corresponding 
Secretary, 1888-89, Secretary, 1890-91, Secretary-Treas- 
urer, 1891-94. Samuel Nelson, Buffalo, N. Y., Record- 
ing Secretary, 1888-89. M. W. Sackett, Meadville, Pa., 
Secretary-Treasurer, 1894-1906. C. A. Gower, Lansing, 
Mich., Secretary-Treasurer, 1906-1913. 

Associated Fraternities of America. On March 21, 
1901, a meeting of fraternalists was held in Chicago for 
the purpose of organizing the Associated Fraternities of 
America. Leading spirits in the organization came from 
societies domiciled in Iowa. This was a movement in 
protest against the legislative policy of the National Fra- 
ternal Congress. The societies represented at the found- 
ing were from among the younger organizations, and 
their leaders believed that the principles of adequacy 
should be applied to all fraternities alike. 

The causes that led to the birth of the new organiza- 
tion should be given a brief review. In 1893 the Nation- 
al Fraternal Congress recommended that its Uniform 



CO-OPERATIVE ORGANIZATIONS 79 

Bill be enacted by the legislatures of States having no 
laws relating to fraternal societies, and the general trend 
of its legislative activities was to obtain uniformity of 
laws in all States. In 1899 it adopted the National Fra- 
ternal Congress Table of Mortality. At the annual con- 
vention of 1900 in Boston a resolution was passed which 
recommended "to the law-making power of all States 
and Provinces in the enactment of laws that will require 
all fraternal benefit societies thereafter organized and 
not theretofore admitted to do business therein, to adopt 
rates not lower than is demonstrated to be necessary by 
the following mortality table (N. F. C. Table), adopted 
by this Congress at its last meeting." 

Leaders of the movement to organize the Associated 
Fraternities of America declared that this placed the 
societies in the N. F. C. in the position of demanding that 
new societies and societies which were extending their 
field of operations be required to adopt high rates while 
the result was old orders were permitted to continue on 
their low rates. They contended that if the adequate 
rates advocated by the National Fraternal Congress were 
necessary they should be applied to all. The bill spon- 
sored by the N. F. C. was termed by them the "Force 
Bill" because its purpose was to force certain societies 
to operate on high rates, thus putting them at a disadvan- 
tage in competition with the old societies for new busi- 
ness. 

The meeting in Chicago made the arrangements for 
the first annual convention of the Associated Fraternities 
of America, which was held in July, 1901, at Cambridge 
Springs, Pa. The following societies were represented: 
Ancient Order of Gleaners, Ancient Order of Red Cross, 
American Catholic Union, Brotherhood of American. 



80 FRATERNAL INSURANCE 

Yeomen, Bankers' Fraternal Union, Daughters of Col- 
umbia, Fraternal Brotherhood of the World, Fraternal 
Bankers* Reserve, Fraternal Army of America, Frater- 
nal Tribunes, Grand Fraternity, Highland Nobles, Home 
Guards of America, Knights of Kadosh, Knights and 
Ladies of Columbia, Loyal Mystic Legion of America, 
Mystic Workers, Mutual Protective League, Mystic Toil- 
ers, Modern Tontines, Modern Brotherhood of America, 
Modern Order of Praetorians, Missouri Fraternal Con- 
gress, National Protective League, Order of Americus, 
Order of Washington, Royal Circle, Royal Fraternal 
Union, Sons and Daughters of Justice, Societe des Arti- 
sans, The Chevaliers, The Fraternal Censor, United Mod- 
erns, Utopian Brotherhood of America. 

A Declaration of Principles was adopted in which the 
reasons for organizing the Associated Fraternities of 
America were given as follows : "We hereby declare our 
uncompromising opposition to any and all legislation 
which would tend to restrict the rights of the member- 
ship of our society to self-government, and denounce as 
unwise, unfair and against public policy any statutory 
enactments for government and control of fraternal as- 
sociations which do not apply expressly to all societies 
with equal force and effect. 

"We further declare that we believe all societies should 
charge adequate mortality rates for their promised bene- 
fits, and while we disclaim any attempt to curtail the 
rights of the membership of any association to organize 
their beneficiary department in such form and conduct 
the same in such manner as to them shall seem most con- 
ducive to their happiness and welfare, we courteously 
and earnestly recommend that each association study its 
Own system and experience to the end that the association 



CO-OPERATIVE ORGANIZATIONS 81 

will be able to collect from its contributions sufficient to 
insure safety and permanency." 

Annual conventions of the Associated Fraternities of 
America have been held as given below. In each para- 
graph is given the year, the days on which sessions were 
held, the convention city, and the man elected president 
and his address. The presiding officer at each annual 
convention was the president elected the preceding year. 

1901 July 16-17; Cambridge Springs, Pa.; C. H. 
Robinson, Chicago, 111. 

1902 September 9-10; Chicago, 111.; C. H. Robinson, 
Chicago, 111. 

1903 August 4-6 ; Montreal, P. Q. ; Lee W. Squier, 
Philadelphia, Pa. 

1904 September 20-24; St. Louis, Mo.; W. R. Eid- 
son, Alamogordo, N. M. 

1905 August 29-31; Milwaukee, Wis.; Geo. R. Mc- 
Kay, Cleveland, Ohio. 

1906 August 21-23; Detroit, Mich.; Edmund Jack- 
son, Fulton, 111. 

1907 August 20-22; Buffalo, N. Y.; T. B. Hanley, 
Des Moines, Iowa. 

1908 August 25-27; Chicago, 111.; J. C. Root, Oma- 
ha, Neb. 

1909 September 20-23; Omaha, Neb.'; W. E. Davy, 
Des Moines, Iowa. 

1910 August 22-25; Atlantic City, N. J.; E. W. 
Donovan, Detroit, Mich. 

1911 August 21-24; Niagara Falls, N. Y. ; A. R. Tal- 
bot, Lincoln, Neb. 

1912 August 19-22; St. Paul, Minn.; W. A. Eraser, 
Omaha, Neb. 

1913 August 18-21; Chicago, 111.; consolidated with 
the National Fraternal Congress. 



82 FRATERNAL INSURANCE 

Secretaries of the Associated Fraternities of America 
were as follows: Edmund Jackson, 1901-05; C. H. 
Robinson, 1905-11 ; E. W. Donovan, 1911-13. 

For ten years there was contention between the Na- 
tional Fraternal Congress and the Associated Fraternities 
of America in regard to legislation demanded in the 
various States. When the committee of one appeared at 
a legislative committee hearing in support of its measures 
it was almost certain to be opposed by the other. They 
worked at cross purposes and, as a result, it was difficult 
for legislators and insurance commissioners to determine 
the true fraternal sentiment of the land. Each organi- 
zation had a conference committee, and it was through 
the joint meetings of these that agreement was reached 
on minor matters. However, the Uniform Bill of the 
National Fraternal Congress was opposed with con- 
sistent regularity by the A. F. A., and the legislation in 
regard to reserve funds and surrender values supported 
by the latter was opposed by the N. F. C. 

Finally the two organizations met in thought and ac- 
tion in 1910 and approved the Mobile Bill. Following 
this came their joint action in respect to the New York 
Conference amendments in 1912. They were united in 
purpose. Why should they not act together as one great 
representative body of American f raternalists ? This was 
the question that the leaders asked themselves and each 
other, with the result that the annual conventions of the 
National Fraternal Congress and the Associated Fra- 
ternities of America were held in Chicago on the same 
day in 1913 and a consolidation effected. The new 
organization was named the National Fraternal Congress 
of America. It provided a conference organization for 
all societies. 



CO-OPERATIVE ORGANIZATIONS 83 

National Fraternal Congress of America. On Au- 
gust 21, 1913, in the City of Chicago, with Herman L. 
Ekern, Insurance Commissioner of the State of Wis- 
consin, presiding, a joint meeting of the National Fra- 
ternal Congress and the Associated Fraternities of 
America was held for the purpose of effecting a con- 
solidation. The meeting was successful in accomplishing 
its purpose, with the result that the National Fraternal 
Congress of America was founded and organized, with 
officers selected from both of the old bodies. W. H. 
Powers was elected President; J. F. Taake, Vice-Presi- 
dent ; and the Executive Committee elected W. E. Futch 
to the office of Secretary. 

The National Fraternal Congress of America became 
the most complete organization for accomplishing its aims 
that the fraternal benefit system had ever possessed. It 
spoke for organized fraternalism in America, and its 
representatives before legislative committees and State 
insurance departments received courteous and respectful 
attention from legislators and supervising officials. Con- 
gress of the United States today is careful not to take 
action on any subject affecting the societies until the 
representatives of the fraternal system have had a hear- 
ing. 

A convention is held each year for the purpose of dis- 
cussing and taking action on the various questions affect- 
ing fraternal operation, and are concerned chiefly with 
legislation to put the fraternal system on a sound and 
enduring basis. At these conventions the various com- 
mittees render their reports. Also are held the annual 
meetings of the sections of the Congress. These are 
auxiliary organizations composed of the presidents, secre- 
taries, medical director-?;, attorn ies and editors of the 



84 FRATERNAL INSURANCE 

various member societies. Their meetings are devoted 
to questions which are distinctly within the province of 
the officers composing the section. For instance, the 
presidents discuss management of the societies and field 
work; the secretaries, problems of administering the 
business of the home office ; the medical directors, phases 
of medical examinations which accompany applications 
for insurance; the lawyers, legal questions made impor- 
tant and timely by current decisions of the courts ; and 
the editors talk over the problems concerned with the 
editing and publishing of the official journals. The Press 
Section of the N. F. C. of A. is known as the National 
Fraternal Press Association. 

The desires of the Congress in reference to statutory 
legislation is. made known to insurance commissioners 
and legislators through the Committee on Statutory Legis- 
lation, which is directed by the Executive Committee. 
Throughout the history of the N. F. C. and the A. F. A., 
as well as the Congress of today, this committee has 
spoken for millions of members who carry certificates in 
fraternal benefit societies in respect to the statutes that 
affect their protection. Credit should be given to Charles 
E. Piper, of Chicago, who was chairman of this com- 
mittee during the years when the constructive laws of 
today were being evolved. His was a mighty respon- 
sibility, and he was often subjected to abuse in the violent 
contentions of that time, but he carried through the 
measures with honor. The fraternal system owes him 
a great debt of gratitude. 

The Modern Woodmen of America, the largest society, 
has been a member of the Congress at intervals, but 
whether in or out, it has maintained a legislative bureau 
that has also been influential in legislative halls. John 



CO-OPERATIVE ORGANIZATIONS 85 

Sullivan, Kansas City, Mo., is chairman of the M. W. A. 
Committee of Legislation, and he has directed with 
ability the organized voice of Modern Woodmen mem- 
bers, more than a million at this writing. To Mr. Sul- 
livan belongs a share of the credit for looking after the 
interests of all fraternalists when and where legislation 
is concerned. He is also chairman of the legislative 
committee of the American Fraternal Congress. 

During the five years of its history the chief accom 
plishment of the National Fraternal Congress of America 
has been to preserve the gains in legislation which it 
inherited with the consolidation in 1913. These are com- 
bined in the New York Conference Bill. This measure 
has been defended against efforts to weaken its pro- 
visions, or attempts by enemies of the system to bring 
about in a fell swoop the improvements which must de- 
velop through time. The N. F. C. of A. has determined 
that the New York Conference Bill shall be the fraternal 
law of the land, and it has been diligent, through its 
Committee on Statutory Legislation, in having it enacted 
in additional States and securing its adoption in place 
of the Mobile Bill in others. 

The National Fraternal Congress of America has also 
endorsed child insurance for fraternal benefit societies 
and has included this in a campaign for Whole Family 
Protection. Its model bill to give permission to fraternal 
societies to write juvenile insurance was endorsed in 
1916 by the National Convention of Insurance Commis- 
sioners and has obtained general adoption by State legis- 
latures. 

Other accomplishments by the Congress include a 
splendid celebration of the fiftieth anniversary of the 
founding of the fraternal systern, which was held in 



86 FRATERNAL INSURANCE 

Independence Square, Philadelphia, in August, 1918; 
and a successful opposition to social insurance and other 
State socialistic measures which are foreign to American 
ideals. The Congress has ever upheld the true ideals of 
life insurance protection, and for this reason it has pre- 
vented the absorption of fraternal societies by com- 
mercial life insurance companies and the spread of group 
insurance by the latter. During the participation of the 
United States in the world war the National Fraternal 
iCongress of America was in the forefront of the patriotic 
van. It endorsed the government measure for soldiers' 
and sailors' insurance when the bill was pending in Con- 
gress and needed support. It recommended extra assess- 
ments by the societies for the purpose of keeping the 
protection of soldiers and sailors in full force and effect. 
It organized War Savings Societies in the subordinate 
lodges of the affiliating societies, and it recommended 
to the member societies that all their funds available for 
investment during the war be subscribed to the govern- 
ment loan issues. Its support of the Red Cross, Y. M. 
C. A., Knights of Columbus and kindred organizations 
was sincere and effective. 

Annual conventions of the National Fraternal Con- 
gress of America, with the time and place, and the presi- 
dent elected and his address, have been as follows : 

1913 August 21 ; Chicago, 111. ; W. H. Powers, Bos- 
ton, Mass. 

1914 August 18-20; Niagara Falls, N. Y.; J. F. 
Taake, Des Moines, Iowa. 

1915 August 23-27; Minneapolis, Minn.; Geo. W. 
Miller, Chicago, 111. 

1916 August 21-25; Cleveland, Ohio; I. I. Boak, 
Denver, Colo. 



CO-OPERATIVE ORGANIZATIONS 87 

1917 August 21-23; Chicago, 111.; R. H. Gerard, 
Crawfordsville, Ind. 

191S August 27-29; Philadelphia, Pa.; A. C. Mc- 
Lean, Sharon, Pa. 

Federated Fraternities. One of the organizations 
subscribing to the agreement that resulted in the New 
York Conference Bill was the Federated Fraternities. It 
was organized in March, 1909, at Harrisburg, Pa. It 
was opposed to the legislative movements of that time, 
and said : "We are convinced that an optimistic policy 
should be adopted and the societies given an opportunity 
to work out their own destinies without undue interfer- 
ence and unfriendly outside influence." Meetings were 
held for several years and the last was in 1916. 

American Fraternal Congress. At a meeting held 
in Chicago, February 22, 1919, the American Fraternal 
Congress was organized by leaders of some of the larg- 
est societies. A preliminary organization had been ef- 
fected in New York City the previous December, but the 
Chicago meeting is understood to be the beginning of 
the Congress. The officers elected were: President, A. 
R. Talbot, Head Consul of the Modern Woodmen of 
America ; Past President, John J. Lentz, National Presi- 
dent of the American Insurance Union; Vice-President, 
W. A. Fraser, Sovereign Commander of the Woodmen 
of the World; Secretary, John H. Notley, Supreme 
Master of the Mystic Workers of the World; Chairman 
of the Committee on Statutory Legislation, John Sulli- 
van, of the Modern Woodmen of America. 

The societies represented at the organization meeting 
had a combined membership of about four million. 
These were : American Insurance Union, Brotherhood of 
American Yeomen, Fraternal Aid Union, Modern Wood- 



88 FRATERNAL INSURANCE 

men of America, Mystic Workers of the World, North 
American Union, Royal Neighbors of America, Wood- 
men Circle, and Sovereign Camp Woodmen of the World. 

In a statement by Secretary John H. Notley the im- 
mediate object of the American Fraternal Congress was 
declared to be to register its approval of the provisions 
regulating mergers of fraternal societies on the statutes 
of nearly forty States, also the New York Conference 
Bill and such other legislation as had been mutually 
agreed upon between the societies and the National Con- 
vention of Insurance Commissioners, and to work against 
other legislation which might hamper the operation of 
fraternal organizations. 

At a special meeting of the Congress in St. Louis, 
April 15, 1919, a constitution was adopted. It also 
passed a resolution in which it affirmed its support of 
measures which had been agreed upon between fra- 
ternalists and insurance commissioners in their national 
organizations and urged its legislative representatives to 
support for enactment the New York Conference Bill 
in all States where it had not been adopted. 

Canadian Fraternal Association. This organization 
has had a long and honorable career. It was founded 
September 16, 1891, for the purpose of uniting legitimate 
fraternal benefit societies "for purposes of mutual in- 
formation, benefit and protection." It is composed of 
Canadian societies and those of the United States which 
operate in the Dominion, and each society is entitled to 
be represented by its executive head, chief medical exam- 
iner, chief secretary and chief organizer in Canada, with 
further representation based on the number of members 
in that country. 

The societies of Canada and the United States have 



CO-OPERATIVE ORGANIZATIONS 89 

always been closely drawn together by fraternal ties. 
The chief officers of many societies on either side of the 
boundary line have belonged to both the Canadian Fra- 
ternal Association and similar organizations in the United 
States. They have demonstrated that brotherly love can 
and does extend beyond the boundaries of nations and 
that fraternity creates a better understanding between 
peoples and governments. The fact that a boundary line 
of more than three thousand miles separates these coun- 
tries without the menace of a gun on either side is the 
marvel of the world. Such a condition in Europe would 
be unthinkable. But the people of Canada and the 
United States accept it as a matter of course. They 
believe in living in peace and understanding, and the fra- 
ternal relations between the societies of these countries 
has without a doubt contributed largely to the good feel- 
ing. It gives us hope that the future peace and happi- 
ness of the world will be grounded in fraternity. Leagues 
of nations or alliances will be of no avail until peoples 
learn to understand each other. There will be no repub- 
lic of the world until fraternity leads the way. 

The first regular meeting of the Canadian Fraternal 
Association was held in Toronto, Ont, November 19, 
1891, and Toronto was the convention city each year 
thereafter until April, 1917, when the meeting was held 
in Montreal, P. Q. In 1918 the convention city was 
Hamilton, Ont., and Ottawa in 1919. 

Officers elected in 1891 were as follows: President, 
Dr. Oronhyatekha, Toronto, Ont. ; Vice-president, John 
Milne, Essex, Ont. ; Secretary-Treasurer, J. B. King, St. 
Catharines, Ont.; Counsellor, John R. Miller, Toronto, 
Ont. ; Medical Examiner, Dr. B. E. McKenzie, Toronto, 
Ont. 



90 FRATERNAL INSURANCE 

Dr. Oronhyatekha, the great leader of the Independent 
Order of Foresters, presided at the annual meetings of 
the Canadian Fraternal Association in 1891 and 1892, 
and those who succeeded him in the years that followed 
were among the leaders of Canadian fraternalism 
names representative of the progress which the Dominion 
societies have made. Up to 1919 the presidents of the 
Association and the years in which they were elected 
were as follows: D. F. MacWatt, Barrie, Ont, 1893; 
Dr. J. S. King, Toronto, Ont., 1894 ; F. G. Inwood, To- 
ronto, Ont., 1895 ; Col. D. M. Robertson, Toronto, Ont., 
1896; Capt. Thos. Donnelly, Kingston, Ont., 1897; Ly- 
man Lee, Hamilton, Ont., 1898; Major H. J. Snelgrove, 
Cobourg, Ont., 1899; Dr. A. E. Mallory, Colborne, Ont., 
1900; Dr. J. M. Cotton, Toronto, Ont., 1901; John S. 
Dench, Toronto, Ont., 1902; W. J. McCammon, Belle- 
ville, Ont., 1903 ; J. A. Patterson, K. C, Toronto, Ont, 
1904; C. V. Emory, Hamilton, Ont., 1905; C. A. Lapp, 
Brighton, Ont., 1906; Dr. Thos. Millman, Toronto, Ont., 
1907; E. T. Essery, LL.B., K. C., London, Ont., 1908; 
Alex. Eraser, M.A., Toronto, Ont., 1909; D. E. Ryan, 
Kingston, Ont., 1910; John Donogh, Toronto, Ont., 
1911 ; John Aldridge, Toronto, Ont, 1912; Dr. J. H. Bell, 
Hamilton, Ont., 1913; Dr. John Ferguson, Toronto, 
Ont, 1914; Dr. W. S. Harrison, Toronto, Ont., 1915; 
Henri Roy, Montreal, P. Q., 1916; Rev. T. S. Boyle, 
D.D., Windsor, N. S., 1917; W. C. Mikel, K. C., Belle- 
ville, Ont, 1918; J. B. McKillop, London, Ont., 1919. 

The office of Secretary-Treasurer was held from 1892 
to 1897 by B. J. Leubsdorf, of St. Catharines, Ont. 
From 1898 to the present time Wm. F. Montague, of 
Hamilton, Ont., has been Secretary-Treasurer, having 
rounded out a service of more than twenty years. 



CHAPTER VI 

NATIONAL FRATERNAL CONGRESS TABLE 
OF MORTALITY 

A mortality table is a tabulated statement showing 
the number of deaths that may be expected to take place 
during a given period among a certain number of per- 
sons of stated ages. Tables of this kind are used chiefly 
in computing premiums and reserves for life insurance 
and annuities. When based upon a sufficiently large 
number of observations there is but a small variation 
between their results and the actual mortality experi- 
enced. 

The whole science of life insurance is based on the 
probabilities of dying. We all know that human beings 
are expected to die and that rarely does anybody live 
more than a hundred years. We also know that the 
possibility of death is ever present and that many per- 
sons die in youth, in the prime of life and in old-age. 
It is impossible to foretell when a single individual will 
die. It is impossible to foretell when certain individuals 
in a group will die. But observation of large groups of 
people has established the fact that a certain number 
will die in various years. This is the law of mortality. 
The records of a group, say of one hundred thousand 
persons, under the effects of this law constitute a table 
of mortality. Such a table becomes the guide by which 
a life-insuring organization may expect deaths among 
its policyholders. Since mortality is subject to a power 
above human interference and control, the law of mor- 
tality endures throughout the ages and those who would 
ignore it must take the consequences of their folly. 

91 



92 FRATERNAL INSURANCE 

The fact that mortality follows a regular course was 
suspected in early times, but the first complete table of 
actual mortality experience was not published until 1692. 
It was compiled by Edmund Halley, the British Astron- 
omer-Royal, from the statstics of the town of Breslau, 
in Silesia. 

Some of the first mortality tables have been tested by 
comparison with actual experience and have been found 
to vary widely from the actual results. This does not 
indicate drastic changes in the law of mortality caused 
by the passage of time, as one might suppose, but it 
means that the tables were not accurate. The accuracy 
of a table of mortality depends upon the diligence of the 
compiler in obtaining true statistics, and, if it is to be 
applied to lives under certain conditions, it should have 
been compled from observations of lives under the same 
conditions. The most characteristic illustration of this 
point is the fact that most life insurance companies for 
years have experienced an actual mortality more fav- 
orable than that expected because their insured lives 
have been selected under rigid medical examinations, 
while the lives under observation for their tables were 
not so carefully selected. 

Thus, the Northampton Table is an interesting exam- 
ple of erroneous construction. It was published in 1783 
and was compiled by Dr. Price from statistics of the 
deaths and baptisms in two parishes in the town of 
Northampton, England, from 1735 to 1780. He found 
that the number of deaths exceeded the baptisms and 
therefore assumed that the additional deaths were caused 
by immigration into Northampton at the age of 20. His 
assumption was inaccurate, however, because there were 
many Baptists in the town and their children did not 



N. F. C. TABLE OF MORTALITY 93 

appear on the records of christenings, and Dr. Price 
failed to include all the births. The record of deaths 
was complete, and therefore, the baptisms should not 
have been used with the deaths. He should have ob- 
tained an accurate record of births. When the North- 
ampton Table was adopted by life assurance companies 
they earned large profits. On the other hand, annuity 
companies using this table suffered severely because their 
annuitants lived longer than the table indicated. 

Sources of Mortality Observations. The two chief 
sources for obtaining information upon which a safe 
mortality table can be compiled is (1) population sta- 
tistics, including registrations of births and deaths, and 
(2) statistics of life insurance companies and fraternal 
benefit societies. 

We may safely say that no positively accurate table 
of mortality for the general population has ever been 
compiled. This is due to the fact that the sources of 
information are limited. Even with a careful record of 
vital statistics in a specified area over a long term of 
years the results will be inaccurate because people will 
misstate their ages, and because it is impossible to trace 
lives throughout their history. Such factors as immi- 
gration will have an effect; in an old community the 
young will remove to new lands, leaving the aged, and 
in a pioneer settlement the population will be composed 
chiefly of the young and virile. And the information 
available from the records of life insurance companies 
will include only those who have been selected by medi- 
cal examinations. 

Therefore, in judging a mortality table for the pur- 
poses for which it is to be used we should know some- 
thing of the sources from which it was compiled. Lives 



94 FRATERNAL INSURANCE 

which are fresh from the medical examination are called 
select lives, and a mortality table based on their subse- 
quent history is called a Select Table. It is assumed 
that the lives will change after the medical examination 
and the favorable effects will ultimately disappear; 
therefore, a mortality table based on lives insured five 
or more years is called an Ultimate Table. 

American Experience Table. The standard table 
in use among life insurance companies in the United 
States is the American Experience Table of Mortality. 
It is an ultimate table. It was constructed in 1861 by 
Sheppard Homans and was first published under its pres- 
ent name in a schedule attached to an Act passed by the 
Legislature of the State of New York on May 6, 1868. 
Full particulars of the data employed have never been 
given, but it is understood that the compiler used statistics 
deduced from the experience of the Mutual Life Insur- 
ance Company of New York, which began to write insur- 
ance in 1843. These figures were inadequate at the older 
ages and accordingly he arbitrarily adjusted the table 
with other data. 

The American Experience Table begins with 100,000 
persons at age ten and fixes the limit of life at ninety- 
six years the age at which the last three of the original 
100,000 are assumed to die. It is the most popular table 
in this country for legal reserve companies, which use 
it as originally compiled or as a basis with graduations 
for their premiums and reserves. It is the usual stand- 
ard of valuation. When several fraternal societies 
changed their plans of operation to the reserve basis they 
adopted the American Experience Table. It is emi- 
nently safe. For a long period of years up to 1918 the 
actual mortality experience of leading life insurance com- 



N. F. C. TABLE OF MORTALITY 95 

panics was less than 69 per cent, of the expected. The 
expected was based on this table. 

A Mortality Table for Fraternal Societies. In the 
early years of fraternal operation the rates of contribu- 
tion were based on the demands of current mortality. 
'As time went on and the members became older and the 
death rate increased the societies became aware of the 
ifact that their assessment rates could not remain level. 
JAccordingly, when the National Fraternal Congress met 
lin 1895, the Committee on Statistics and Good of the 
Orders, of which J. E. Shepard was chairman, submitted 
a special report, which contained conclusions based on 
special data obtained from the societies. The Committee 
was led to the conclusion that "barring merely the incep- 
tive period of an order, when conditions more or less 
abnormal prevail, that there exists a gradual and very 
general increase in the mortuary rate wholly due to the 
increasing average of age, or in other words, the greater 
maturity of lives." 

The Committee of 1895 said also : "We believe that 
the existing fraternal orders can be perpetuated provided 
they heed the lesson and the warning that the experi- 
ence of the past so plainly gives and teaches. * * * 
It is indispensable to recognize the Law of Mortality 
as the governing factor. * * * The rate fixed for 
life at the age of entry is common to nearly all the fra- 
ternal orders. Our experience demonstrates that it is 
faulty in theory, unsound in practice and should be reme- 
died, and this can be accomplished by increasing the rate 
with increasing age or by so adjusting the rates as to 
establish a fund that shall equalize the cost throughout 
life, or, in other words, establish a Reserve. If with 
our experience we should institute a ne.w fraternal order 



96 FRATERNAL INSURANCE 

at the present time, one or the other of these, the law 
permitting, perhaps more or less modified, but in sub- 
stance the same, would probably be adopted. In the 
proposition advanced the elements of 'Safety' and 
'Equity' are separated, and first to be considered is the 
element of 'Safety.' Loading the rate at age of entry 
to minimize the cost of advancing years is the old-line 
plan of the reserve. The establishment of such a fund 
has, until within a year or two, been generally condemned 
by the fraternal orders, not for the reason that it is not 
of itself good, but that it has been improperly adminis- 
tered and made a means of gravest abuse. Proper-h- 
ad justed to our requirements, it would make protection 
certain, work wrong to no man and be in the direct line 
of safety. Any table based on this plan must be accu- 
rately worked out and grounded on the condition of a 
fixed annual amount payable by installment, of which a 
certain per cent., with its increment of interest, will form 
a reserve fund. This reserve can very safely be largely 
reduced from the reserve based on the standard tables." 

This suggestion evidently had some effect on those 
who, in the years immediately following, labored for the 
compilation of a mortality table for the use of fraternal 
benefit societies. It is needless to say that the above 
recommendations were revolutionary. They were con- 
sidered and discussed by the National Fraternal Con- 
gress in executive session for parts of two days with 
the result that the Committee was instructed "to con- 
tinue consideration of the subject matter for the ensu- 
ing year and make report to the Congress at its next 
stated meeting." 

In 1896 the Committee on Statistics and Good of the 
Orders submitted a second special report which sup- 



N. F. C. TABLE OF MORTALITY 97 

ported its suggestions of the preceding year. As a re- 
sult, it was instructed to make a third report in 1897, 
and "prepare and present to the next Congress such 
plans or systems of fraternal beneficiary protection that 
seem to them best adapted to the establishment of perma- 
nent fraternal protection at the lowest possible cost." 

When the fraternal leaders began to talk of life in- 
surance protection on a scientific basis, it could lead to 
but one result, viz., the adoption of a table of mortality. 
Consequently, when the National Fraternal Congress, 
of 1897 organized for business, D. P. Markey, who was 
then the Chairman of the Committee on Statistics and 
Good of the Orders, offered a resolution signed by all 
the members of the Committee, as follows : "Resolved, 
That the incoming president of this Congress be re- 
quested to appoint a special committee of three to pre- 
pare minimum tables of rates upon the level and step- 
rate plans and any modifications of the same which may 
seem to them desirable and commensurate with safety, 
and that said committee report at the next session of 
this Congress." 

This and a resolution presented by another member 
were considered by the Congress. On the following day, 
October 7, 1897, a new resolution was drawn up, pre- 
sented and adopted. It follows : 

"Resolved, That the incoming president of this Con- 
gress be requested to appoint a special committee of three 
to prepare tables of rates upon the level premium, the 
natural premium or step-rate plan and the step-rate plan 
with such modifications by applying to a proper extent 
the principles of a reserve or emergency fund. 

"Said Committee shall, so far as possible, secure and 
present to this Congress a comprehensive statement of 



98 FRATERNAL INSURANCE 

the remedial changes which have been, or shall in the 
ensuing year be, adopted by any fraternal order, the 
object herein sought being the securing of such knowl- 
edge as shall be of value to this Congress in arriving at 
definite, safe and sound conclusions. 

"Whereas, At the last session of the Congress a reso- 
lution was unanimously adopted in which it was declared 
to be the 'imperative duty of the several orders repre- 
sented here to make, at the earliest practical date, proper 
provision for meeting the inevitable increase in the rate 
of mortality by adjustment of rates so that contribution 
shall be equitably proportioned to the hazard at risk.' ; 

"Resolved, That this Congress hereby reaffirms its 
declaration of one year ago." 

National Fraternal Congress Table of Mortality. 
The members of the Special Committee to prepare 
tables of rates was appointed by the incoming president 
as follows : H. C. Sessions, Chairman ; F. A. Draper, 
and D. P. Markey. The President, James E. Shepard, 
became ex-officio a member. 

The Committee reported to the 1898 convention of 
the Congress and submitted a table of mortality, with 
the various tables of rates as instructed. Regarding the 
conditions incident to the construction of such a work, 
the Committee said : "The only data open to f raternals 
up to the present time has been the various mortality 
tables constructed from the experience of old-line com- 
panies, constructed by actuaries in their employ, with 
reference to providing a margin of safety to enable the 
company to make fixed contracts of insurance without 
increasing the amount of the annual premium. It has 
been a popular belief, based upon the actual mortality 
experience of the members of the old-line companies, 



N. F. C. TABLE OF MORTALITY 99 

as well as the large amount of surplus accumulations, 
amounting to many millions of dollars in addition to the 
required legal reserve and dividends paid stockholders, 
that these rates were higher than necessary, especially 
when applied to a system where the number of assess- 
ments are not absolutely limited. The Committee, though 
not specially advised by the Congress, understood that 
it desired tables of rates as low as possible, keeping in 
view safety and perpetuity of the society, without in- 
creasing the rate or the number of assessments under 
ordinary conditions, above the minimum annual number 
required by the tables herewith submitted." 

The experience used in constructing the tables em- 
braced the mortality experience of old-line companies in 
the United States, England, Canada and Australia; and 
of the fraternal societies, the Royal Arcanum and the 
Ancient Order of United Workmen, which were the two 
oldest and largest in this country. The Committee made 
use of the advice and assistance of eminent actuaries, 
among them being George Dyre Eldridge, who subse- 
quently became one of the great fraternal actuaries. 

The Congress of 1898 received the report of the Com- 
mittee and published it in the proceedings of the session, 
"to the end that the subject matter may be thoroughly 
digested and finally disposed of at the next session of this 
Congress." In the year that followed the Committee 
compared its tables with some new fraternal experience 
and made a regraduation at certain ages. 

At the convention of the National Fraternal Congress 
in 1899 the final report of the Committee was submitted. 
Whereupon, the table was adopted by unanimous vote 
on August 23, 1899, in the City of Chicago, and it was 
called the National Fraternal Congress Table of Mor- 
tality. 



100 FRATERNAL INSURANCE 

Accompanying the table was a recommendation which, 
had it been followed by societies which attempted to 
adjust the rates of old members at attained ages, would 
have prevented many of the disappointments incident 
to attaining solvency. The Committee said : "The mass 
of data from which this mortality table is adjusted is so 
extensive that the conclusions reached have ample sup- 
port as to its sufficiency. It can be applied to new busi- 
ness and old business at attained ages, when the latter is 
in good physical condition. Should such old business be 
below the average, then such impairment must be pro- 
vided for by an addition to the rate of the table." Many 
societies, when adjusting their rates, ignored this and 
placed their old members on N. F. C. rates at attained 
ages without an addition to the rate of the table. Since 
most of these old members were impaired risks, their re- 
rating amounted to nothing more than a postponement 
of trouble. 

Testing the N. F. C. Table. Much of the agitation 
over adequate rates in following years centered about the 
National Fraternal Congress Table of Mortality. It was 
attacked on the ground that it was not an investigation 
of actual fraternal experience. Therefore, the National 
Fraternal Congress authorized the Committee on Statis- 
tics and Good of the Orders to compile a table from the 
experience of the societies, a,s more of it was available 
later, for the purpose of testing the N. F. C. Table. The 
work was done by Abb Landis, the actuary, and the 
result was the Forty-Three Societies Table. 

Mr. Landis writes of the effect of the Forty-Three 
Societies Table as follows : "A voluminous report was 
submitted by Mr. Markey, Chairman of the Committee 
on Statistics and Good of the Orders, at the meeting in 



N. F. C. TABLE OF 

Montreal, 1906. This report contained several mortality 
tables constructed from the experience of forty-three 
societies, members of the Congress, which tables so 
nearly corresponded with that reported in 1897 that the 
Committee on Statistics came to the conclusion that the 
original table, for all practical purposes, reflected the 
actual experience of fraternal orders, and that the Con- 
gress was justified in continuing its endorsement as orig- 
inally given, taking into consideration the explanation of 
the Special Committee on Rates in reference to its use." 
i In 1917 the Committee on Statistics and Good of the 
Orders of the National Fraternal Congress of America, 
of which Mr. Markey was still Chairman, submitted a 
special report on a further test of the N. F. C. Table. 
In the twenty years since it was compiled many societies 
had adopted the Table for various purposes; some used 
its rates with loading for expenses for new members 
fresh from the medical examination; some used the net 
rates for new members ; and some used the rates for the 
transfer of old members in various conditions of dis- 
ability at attained ages. The readjustments of societies 
in twenty years produced an abnormal condition in fra- 
ternal experience. The Special Report of 1917 con- 
tained a mortality table compiled from the statistics col- 
lected by the Committee from the societies which were 
members of the Congress and which was called the 
"Fraternal Combined Experience Table of Mortality." 
The conclusions resulting from a study of this table is 
that the National Fraternal Congress Table is safe for 
"going concerns," but it is not safe for re-rated business 
in all cases. This merely confirms the statement of the 
Special Committee which compiled the N. F. C. Table 
in 1897, which said at that time: "It can be applied to 



10? FRATERNAL INSURANCE 

new business and old business at attained ages, when the 
latter is in good physical condition. Should such old 
business be below the average, then such impairment 
must be provided for by an addition to the rate of the 
table." The subsequent tests show these words to have 
been prophetic. 

On the following pages are given the National Fra- 
ternal Congress Table of Mortality and the rates deduced 
therefrom. 



N. F. C. TABLE OF MORTALITY 



103 



NATIONAL FRATERNAL CONGRESS TABLE OF 
MORTALITY. 



Age. 


Number 
Living. 


Number 
Dying. 


Probability 
of Living 
One Year. 
P* 


Probability 
of Dying 
Within Year. 

q. 


Expec- 
tation. 


20 


100,000 


500 


.9950000 


.0050000 


45.6 


2JL 


99,500 


501 


.9949648 


.0050352 


44.9 


22 


98,999 


502 


.9949292 


.0050708 


44.1 


23 


98,497 


503 


.9948932 


.0051068 


43.3 


24 


97,994 


505 


.9948466 


.0051534 


42.5 


25 


97,489 


507 


.9947994 


.0052006 


41.8 


26 


96,982 


510 


.9947413 


.0052587 


41.0 


27 


96,472 


513 


.9946824 


.0053176 


40.2 


28 


95,959 


517 


.9946123 


.0053877 


39.4 


29 


95,442 


522 


.9945307 


.0054693 


38.6 


30 


94,920 


527 


.9944480 


.0055520 


37.8 


31 


94,393 


533 


.9943534 


.0056466 


37.0 


32 


93,860 


540 


.9942468 


.0057532 


36.2 


33 


93,320 


548 


.9941277 


.0058723 


35.4 


34 


92,772 


557 


.9939960 


.0060040 


34.6 


35 


92,215 


567 


.9938513 


.0061487 


33.9 


36 


91,648 


578 


' .9936933 


.0063067 


33.1 


37 


91,070 


591 


.9935105 


.0064895 


32.3 


08 


90,479 


606 


.9933023 


.0066977 


31.5 


39 


89,873 1 622 


* .9930791 


.0069209 


30.7 


40 


89,251 


640 


.9928292 


.0071708 


29.9 


41 


88,611 


660 


.9925517 


.0074483 


29.1 


42 


87,951 


683 


.9922343 


.0077657 


28.3 


43 


87,268 


708 


.9918871 


.0081129 


27.5 


44 


86,560 


734 


.9915203 


.0084797 


26.8 


45 


85,826 


761 


.9911332 


.0088668 


26.0 


46 


85,065 


790 


.9907130 


.0092870 


25.2 


47 


84,275 


822 


.9902462 


.0097538 


24.4 


48 


83,453 


857 


.9897307 


.0102693 


23.7 


49 


82,596 


894 


.9891762 


.0108238 


22.9 


50 


81,702 


935 


.9885560 


0114440 


22.2 


51 


80,767 


981 


.9878540 


.0121460 


21.4 


52 


79,786 


1,029 


.9871030 


.0128970 


20.7 


53 


78,757 


1,083 


.9862488 


.0137512 


19.9 


54 


77,674 


1,140 


.9853233 


.0146767 


19.2 


55 


76,534 


1,202 


.9842946 


.0157054 


18.5 


56 


75,332 


1,270 


.9831413 


.0168587 


17.8 


57 


74,062 


1,342 


.9818800 


.0181200 


17.1 


58 


72,720 


1,418 


.9805006 


.0194994 


16.4 


59 


71,302 


1,501 


.9789487 


.0210513 


15.7 



.104. 



FRATERNAL INSURANCE 



NATIONAL FRATERNAL CONGRESS TABLE OF 
MORTALITY Continued. 



Age. 


Number 
Living. 


Number 
Dying. 


Probability 
of Living 
One Year. 
P* 


Probability 
of Dying 
Within Year, 
q* 


Expec- 
tation. 


60 


69,801 


1,588 


.9772496 


.0227504 


15.0 


61 


68,213 


1,681 


.9753566 


.0246434 


14.4 


62 


66.532 


1,778 


.9732760 


.0267240 


13.7 


63 


64,754 


1,880 


.9709670 


.0290330 


13.1 


64 


62,874 


1,985 


.9684289 


.0315711 


12.4 


65 


60,889 


2,094 


.9656096 


.0343904 


11.8 


66 


58,795 


2,206 


.9624798 


.0375202 


11.2 


67 


56,589 


2,318 


.9590380 


.0409620 


10.7 


68 


54.271 


2,430 


.9552247 


.0447753 


10.1 


69 


51,841 


2,539 


.9510233 


.0489767 


9.5 


70 


49,302 


2,645 


.9463511 


.0536489 


9.0 


71 


46,657 


2,744 


.9411878 


.4588122 


8.5 


72 


43.913 


2,832 


.9355088 


.0644912 


8.0 


73 


41.081 


2,909 


.9291887 


.0708113 


7.5 


74 


38,172 


2,969 


.9222205 


.0777795 


7.0 


75 


35,203 


3,009 


.9145243 


.0854757 


6.6 


76 


32,194 


3,026 


.9060073 


.0939927 


6.2 


77 


29,163 


3,016 


.8965990 


.1034010 


5.7 


78 


26,152 


2,977 


.8861655 


.1138345 


5.3 


79 


23,175 


2,905 


.8746494 


.1253506 


5.0 


80 


20,270 


2,799 


.8619142 


.1380858 


4.6 


81 


17,471 


2,659 


.8478049 


.1521951 


4.3 


82 


14,812 


2,485 


.8322306 


.1677694 


3.9 


83 


12,327 


2,280 


.8150402 


.1849598 


3.6 


84 


10,047 


2,050 


.7959590 


.2040410 


3.3 


85 


7,997 


1,800 


.7749156 


.2250844 


3.0 


86 


6,197 


1,539 


.7516540 


.2483460 


2.8 


87 


4,658 


1,277 


.7258480 


.2741520 


2.5 


88 


3,381 


1,023 


.6974268 


.3025732 


2.3 


89 


2,358 


788 


.6658185 


.3341815 


2.1 


90 


1,570 


579 


.6312102 


.3687898 


1.9 


91 


991 


404 


5923310 


.4076690 


1.7 


92 


587 


264 


.5502555 


.4497445 


1.5 


93 


323 


161 


.5015480 


.4984520 


1.4 


94 


162 


89 


.4506173 


.5493827 


1.2 


95 


73 


44 


.3972603 


.6027397 


1.1 


96 


29 


19 


.3448276 


.6551724 


1.0 


97 


10 


7 


.3000000 


.7000000 


.8 


98 


3 


3 


.0000000 


1.0000000 


.5 



N. F. C. TABLE OF MORTALITY 



105 



LEVEL RATES. 

This table shows the lowest rates that can be deduced from 
the mortality table above. The full amount must be collected 
annually, and the portion not used to provide for current mor- 
tality must be invested at four per cent, interest. The annual 
rate is calculated on the basis that the full amount is paid at 
the beginning of the year. The monthly rates are increased 
slightly to provide for the loss of interest due to that method 
of payment and the slightly less amount 'contributed by dying 
members. (No provision is made for expense loading in these 
rates.) 



Age. 


Annual. 


Monthly. 


Age. 


Annual. 


Monthly. 


21 


$10.62 


$ .93 


41 


$20.93 


$1.83 


22 


10.92 


.96 


42 


21.80 


1.91 


23 


11.24 


.98 


43 


22.72 


1.99 


24 


11.57 


1.01 


44 


23.69 


2.07 


25 


11.92 


1.04 


45 


24.72 


2.16 


26 


12.28 


1.07 


46 


25.81 


2.25 


27 


12.67 


1.11 


47 


26.91 


2.35 


28 


13.08 


1.14 


48 


28.20 


2.45 


29 


13.51 


1.18 


49 


29.51 


2.58 


30 


13.96 


1.22 


50 


30.98 


2.71 


31 


14.43 


1.26 


51 


32.39 


2.83 


32 


14.94 


1.31 


52 


33.97 


2.97 


33 


15.47 


1.35 


53 


36.65 


3.12 


34 


16.03 


1.40 


54 


37.45 


3.28 


35 


16.62 


1.45 


55 


39.36 


3.44 


36 


17.24 


1.51 


56 


41.41 


3.62 


37 


17.90 


1.57 


57 


43.60 


3.88 


38 


18.60 


1.63 


58 


45.94 


4.02 


39 


19.34 


1.69 


59 


48.45 


424 


40 


20.11 


1.76 


60 


51.13 


4.47 



STEP RATES AND MODIFICATIONS. 

Column 1 gives the age groups. Column 2 gives the annual 
rates for the natural step-rate to age 61, and the level rate from 
that age for the balance of life. Column 3, the monthly rates, 
as derived from the annual rates with allowance for slight loss 
due to the method of payment. These two columns are the basis 
for calculating columns 4 and 5. Column 4 shows a modifica- 
tion of the natural step-rate by means of an accumulation of 15 



106 



FRATERNAL INSURANCE 



cents per month, which is used to reduce the level cost from 
age 61 to $3.00 per month. Column 5, a similar modification, but 
with an accumulation of 30 cents per month, and a level cost 
from age 61 to $2.50 per month. Under either of these plans all 
members pay the same rates at the same attained ages. The 
purpose in view in these tables is to have a plan that requires but 
little detail in its operation, so as to be readily comprehended by 
the officers of the local lodges. 



1 

Ages. 


2 

Annual. 


3 

Monthly. 


4 

Monthly. 


5 
Monthly. 


21-25 


$ 5.11 


$ .45 


$ .60 


$ .75 


26-30 


5.40 


.48 


.63 


.78 


31-35 


5.93 


.52 


.67 


.82 


36-40 


6.71 


.59 


.74 


.89 


41-^5 


8.14 


.72 


.87 


1.02 


46-50 


10.25 


.90 


1.05 


1.20 


51-55 


13.82 


' 1.21 


1.36 


1.51 


56-60 


19.60 


1.72 


1.87, - 


2.02 


61 


54.01 


4.73 


3.00 


2.50 



ACCUMULATION TABLE. 

The step-rate plan, as shown in column 2 of the above table, 
can be modified to meet the necessities of different societies by 
varying the amount of the accumulation. The following table 
is submitted as a basic table for that purpose. It shows how 
an accumulation of $1.00 per annum, paid in monthly instal- 
ments, may be used to reduce the level cost after age 61, from 
the level rate of $54.01. The table shows the amount of such 
reduction, based on age at entry, giving to each member the full 
benefit of the term of membership. Thus the member entering at 
21 would secure an annual reduction of $11.61, giving an annual 
cost from age 61 of $42.40. The member entering at 36 would 
secure a reduction of $4.71, giving annual cost from age 61 of 
$49.30. The adjustment of annual cost after age 61 would only 
have to be made when the members reach age 61, the rates 
being the same for same attained ages from 21 to 60. 

With this table as a basis, the annual accumulation necessary 
to secure greater reductions can be calculated. If the accumu- 
lation was $2.00 per annum, the reduction would be twice that 



N. F. C. TABLE OF MORTALITY 



107 



of the table, and so in proportion for any other amount of accu- 
mulation : 

At age 61 the level rate is $54.01. 

At each age at entry $1.00 per year additional to natural step- 
rate paid as a special accumulation will give the following annual 
reduction from age 61 : 



Age. 


Reduction. 


Age. 


Reduction. 


21 . 


. $11.61 


36 . 


. $471 


22 . . 


.. 1100 


37 


440 


23 


10.41 


38 


4.10 


24 


9.85 


39 


3.81 


25 


9.30 


40 


3.53 


26 


880 


41 


328 


27 


8.30 


42 


303 


28 


7.82 


43 


2.79 


29 


7.36 


44 


2 55 


30 


6.93 


45 


2.33 


31 T.... 


6.52 


46 


213 


32 


6.13 


47 


... 1 93 


33 


5.75 


48 


.... 1 74 


34 . 


5.39 


49 


156 


35 


5.04 


50 


1.39 



CHAPTER VII 

STATUTORY LEGISLATION AND STATE 
SUPERVISION 

The business operations of fraternal benefit societies 
are today regulated by statutes of the States in which 
they are licensed. This is for the protection of both the 
public and the societies. The public has a right to expect 
that these fraternities shall conform to certain regula- 
tions and maintain established safeguards for the bene- 
fit of those who become members. Ther societies, on 
their part, need protection against fraudulent organi- 
zations which would invade their field and bring reproach 
pon the name of fraternalism. In addition, the chari- 
Fable nature of their work and the fact that they are 
non-profit taking organizations entitle them to special 
consideration at the hands of lawmakers. The exemp- 
tions accorded them must be guaranteed in the written 
law of the government. 

Laws regulating the societies have reached their present 
form through a long period of discussion and revision. 
They have been constructed in accordance with the de- 
mands for the improvement of fraternal operation, and 
progress in lawmaking and adjustment of fraternal 
operation have made progress hand in hand. In the 
early years of the fraternal system the leaders opposed 
legislation and declared that the societies should not be 
subject to regulation or supervision. This stand was 
taken because they believed that the co-operative and 
fraternal character of the business entitled it to exemp- 
tion. They considered that life insurance companies, 

108 



'LEGISLATION AND SUPERVISION 109 

which were organized for profit, were properly subject 
to regulation. This viewpoint caused considerable bit- 
terness. But to the credit of the fraternalists we must 
record the fact that they have drafted and supported 
practically all statutes which have been enacted. 

Supervision of fraternal benefit societies is a power 
of the various State insurance departments. On account 
of the fact that the benefits paid by the societies cor- 
respond in character to the proceeds of life insurance 
policies, and from the further fact that a successful and 
enduring operation of a benefit society is in reality a life 
insurance business, fraternal organizations have been 
placed under the observation of the department of the 
State which protects the people from dishonest insurance 
schemes. The commissioners of insurance are charged 
with the duty of supervision. In the main they have 
been friends of fraternal operation and have assisted in 
the construction of laws for the purpose of placing fra- 
ternal insurance on an enduring foundation. They have 
an organization which is known as the National Con- 
vention of Insurance Commissioners. The Convention 
meets several times a year for the discussion of problems 
pertaining to supervision. By following a concerted 
course in these matters the various departments have 
established uniformity in legislation and supervision. 

Supervision by the State has had a good influence on 
fraternal operation. It has resulted in the benefits and 
rates becoming standardized, and movements for the im- 
provement of the societies have necessarily been sub- 
jected to the approval of the commissioners. On the 
other hand, there has been a tendency among some com- 
missioners to apply the same rules to both the old-line 
companies and the fraternal societies. Undoubtedly this 



110 FRATERNAL INSURANCE 

came as a result of having both kinds of organizations 
under their jurisdiction. Commissioners are human and 
are liable to make the mistakes that are formed by habit, 
and some of them have fallen into the habit of thinking 
of fraternities in the same light as that applied to old- 
line companies. They forget sometimes that fraternal 
benefit societies are mutual co-operative enterprises, not 
conducted for profit, and therefore are entitled to special 
consideration. 

National Supervision. Many people have wondered 
why the business of insurance is supervised by the various 
States and Territories and not by the government of the 
United States. They observe that the business is sub- 
ject to the rules of forty-eight State departments with 
conflicts of authority and duplication of work. There- 
fore they ask why Federal supervision is not ,estab- 
lished. 

Any consideration given to National supervision would 
be merely a discussion of an academic subject. Move- 
ments to attain this end have been a waste of effort in 
the past, and it is doubtful if any living person will ever 
see Federal supervision of insurance in the United 
States. The reason that this prediction can be made 
safely is for the fact that it would require an amend- 
ment to the Constitution of the United States to permit 
the National government to exercise authority over the 
insurance business. People who realize the tremendous 
weight of public opinion needed to carry a movement 
to obtain an amendment to the Constitution will agree 
with this prediction. The simple reason is that enough 
people will not concern themselves in the matter. 

It is declared that the Federal government regulates 
interstate commerce and because the business of insur- 



LEGISLATION AND SUPERVISION 111 

ance reaches across the boundaries of States it, too, could 
be regulated as commerce. But the Supreme Court of 
the United States has declared repeatedly that insurance 
is not commerce. Article X of the Amendments to the 
Federal Constitution reads : "The powers not delegated 
to the United States by the Constitution nor prohibited 
by it to the States, are reserved to the States respectively 
or to the people." This is the authority under which 
the States impose their regulations. 

The Supreme Court of the United States has declared 
/ in at least nine decisions that insurance is not commerce, 
and the first of these was in the case of Paul vs. Virginia 
(75 U. S. 168), decided in 1868. Mr. Justice Field, 
speaking for the court, said : "Issuing a policy of insur- 
ance is not a transaction of commerce. The policies are 
simple contracts of indemnity against loss by fire, entered 
into between the corporations and the assured, for a 
consideration paid by the latter. These contracts are not 
articles of commerce, in any proper meaning of the word. 
They are not subjects of trade and barter, offered in the 
market as something having an existence and value in- 
dependent of the parties to them. They are not commod- 
ities to be shipped or forwarded from one State to 
another and then put up for sale. They are like other 
personal contracts between parties, which are completed 
by their signatures and the transfer of consideration. 
Such contracts are not interstate transactions, though 
the parties may be domiciled in different States. The 
policies do not take effect are not executed contracts 
until delivered by the agent in Virginia. They are then 
local transactions and are governed by the local law. 
They do not constitute a part of the commerce between 
the States any more than the contract for the purchase 



112 FRATERNAL INSURANCE 

and sale of goods in Virginia, by a citizen of New York 
whilst in Virginia, would constitute a portion of such 
commerce." 

This doctrine was repeated in subsequent decisions of 
the Supreme Court. The discussion of Federal super- 
vision became so prominent, however, that the New York 
Life Insurance Company determined to make a test case. 
The hope was indulged in that since the business of in- 
surance had reached such world-wide magnitude and 
played so important a part in commercial life, that, if 
the question could be raised squarely before the Supreme 
Court in a case which would present insurance as it is 
today, the Court could be induced to change its position 
and hold that insurance is commerce and could be regu- 
lated by the Federal government under the commerce 
clause of the Constitution. Out of this hope came the 
case of New York Life Insurance Co. vs. Deer Lodge 
County, an action commenced in the District Court of 
Deer Lodge County, Montana, framed in such a manner 
as to compel a decision of the sole issue: Is Federal 
supervision of life insurance possible under existing 
law? 

The company lost in the local court, met a like fate in 
the Supreme Court of Montana, and promptly carried 
the case to the Supreme Court of the United States. 
The decision (231 U. S. 495) was handed down De- 
cember 15, 1913. Speaking for the Court, Mr. Justice 
McKenna stated that under the doctrine of stare decisis 
it considered the question foreclosed ; but out of respect 
for the able briefs which had been filed on behalf of the 
company, the Court reconsidered the question on principle 
and announced by a vote of seven to two that the previous 
decisions of the Court were correct The two dissenting 
justices did not file an opinion. 



LEGISLATION AND SUPERVISION 113 

This disposes of Federal supervision until an amend- 
ment to the Constitution of the United States is obtained. 
A campaign with such an object in view would bring 
up the old subject of States rights and would create a 
lively discussion. The author believes that the exercise 
of power by the Federal government during the war with 
Germany has reduced the number of those who favored 
Federal supervision of insurance before the war. They 
have observed the effect of the concentration of enormous 
power in the hands of a few men. It breeds autocracy 
among the ranks of the bureaucrats and makes them 
lose their respect for the rights of private enterprise. 
The centralization of authority was quite correct during 
the war, because individual rights must be sacrificed 
when facing the Country's enemy, but in time of peace 
autocracy must be curbed. It is probable that the senti- 
ment in favor of National supervision is weaker now. 

Early Legislation. When the National Fraternal 
Congress was organized in 1886 one of its first acts was 
to constitute and appoint a committee on legislation. A 
study of the reports made by this committee to the an- 
nual conventions of the Congress in the early years dis- 
closes that its efforts were exerted chiefly to oppose 
legislation which was inimical to the societies. No at- 
tempt was made to obtain statutes for the regulation and 
control of the societies, or to prescribe methods of oper- 
ation. In fact it was the intention at first to keep the 
societies independent of the law. Practically all the legis- 
lation for their regulation was proposed by the life in- 
surance companies, whose ideal of a fraternal society 
statute was one which would put the societies out of 
business. 

The beginning of statutory legislation and State super- 



114 FRATERNAL INSURANCE 

vision for fraternal benefit societies was made in 1888 
when a bill was drafted for the purpose of securing 
uniform legislation and substantially was enacted into 
law by the legislature of Massachusetts. Two note- 
worthy features were the provision for the payment of 
endowments and the limitation of the amount of the 
benefit fund to the proceeds of five assessments (both 
of these have been discarded). The Massachusetts stat- 
ute did provide, however, for various regulations which 
have come down practically unchanged to the present 
time. These are (1) that a certain number of persons, 
usually seven, citizens of the State, might form a fra- 
ternal benefit corporation, and the manner in which it is 
organized is outlined; (2) a definition of the nature of 
the corporation and its operation; (3) fraternal benefit 
associations organized under the laws of another State, 
but transacting business in Massachusetts, shall report 
on the request of the commissioner of insurance; (4) the 
report is required to be made on or before the 1st of 
March each year, giving specified information as to its 
operation and a statement of its membership and financial 
transactions up to December 31st of the preceding year; 
and provision for the appointment of the insurance com- 
missioner as the attorney upon whom process is to be 
served. 

Many of these provisions were opposed by men high 
in the ranks of fraternalism, but in 1890 a new cause 
favorable to regulatory legislation was presented to the 
National Fraternal Congress by President D. H. Shields. 
He had come to the conclusion that the societies needed 
protection, and said : "How are we to protect ourselves 
from the many fraudulent organizations that are flooding 
the country under the garb and cloak of fraternity ? We 



LEGISLATION AND SUPERVISION 115 

should carefully consider this question as one of deep 
importance. While we should not do anything to injure 
in any way any legitimate business or avocation, we 
should expose fraud and counterfeits wherever found and 
denounce them in no uncertain terms. Whether or not 
it would be wise to invoke legislation against such I am 
not prepared to say, but something should be done to 
rid the country of the pirates who are robbing the peo- 
ple under the guise of fraternity." 

In 1890 there were no general statutes for the regu- 
lation or supervision of fraternal benefit societies in 
Alabama, California, Colorado, Connecticut, Dakota, 
Delaware, District of Columbia, Georgia, Illinois, Indiana, 
Kansas, Kentucky, Maryland, Michigan, Minnesota, Mis- 
sissippi, Missouri, Nevada, New Hampshire, New Jersey, 
New Mexico, North Carolina, Ohio, Oregon, Pennsyl- 
vania, Rhode Island, Tennessee, Texas, Utah, Virginia, 
Washington, West Virginia and Wyoming. In some of 
these the insurance laws contained clauses exempting 
fraternal societies from their provisions. In Canada the 
only reference to the societies was an exemption in the 
statute controlling the insurance business. 

In Florida, South Carolina, Vermont and Montana, 
there were no laws or exemptions relating to the societies 
at this time, but there were rulings of the State insurance 
departments making the general insurance laws applicable 
to fraternal insurance. 

In Maine, Massachusetts, Nebraska, New York and 
Wisconsin there were special laws concerning fraternal 
benefit societies. These were enacted chiefly for the 
purpose of crippling the societies and hampering their 
expansion. The law of New York was the most favor- 
able and that of Nebraska the most drastic. Not one 



116 FRATERNAL INSURANCE 

contained a provision for constructive upbuilding of the 
societies. 

The Committee on Legislation of the National Fra- 
ternal Congress in 1890 recommended that "no legisla- 
tion subjecting the fraternal orders to State control in 
any way should be permitted to be enacted," and it was 
adopted by unanimous vote; but in 1891 President A. R. 
Savage said : "I think this Congress should adopt some 
more systematic and efficient method of making its in- 
fluence felt in legislative halls, when legislation, either 
favorable or adverse, is under consideration. Notably, 
in two or three States this last year, dangerous if not 
hostile, laws have been enacted which might have been 
defeated by concerted action. We cannot be too vigilant. 
There should be a sentinel upon every outpost, and the 
entire army, when it sleeps, should sleep upon its arms. 
Surely the voice of a million and a half of men and 
women, uttered with force and authority, cannot fail to 
be heard and heeded by the most obdurate of legislators." 

The Massachusetts law permitted the payment of 
endowments by fraternal benefit societies. In 1891 be- 
gan the movement which resulted in the elimination of 
the endowment feature from all certificates and plans 
of the societies. The issuing of endowments is purely a 
banking business and has no relation to life insurance 
except to weaken the protection which is sold with an 
endowment. This is best explained by referring to the 
endowments sold by life insurance companies today; the 
endowment policy includes insurance with the invest- 
ment, but it is only term protection and, in the case of a 
twenty-year endowment, the protection ends at the end 
of twenty years and is not renewable. By reason of the 
permission included in the Massachusetts law before 1891 



LEGISLATION AND SUPERVISION 117 

several "endowment fraternities" had been established, 
and they were operating on rates far too low to permit 
them to pay their obligations. Their failure was fore- 
seen, with the possibility of bringing the protective 
fraternities into disrepute. Therefore the National Fra- 
ternal Congress went on record in opposition to endow- 
ments, and the fraternal system has retained to this day 
its purpose to make protection its chief mission. 

Following its discussion of endowments in 1891 the 
National Fraternal Congress instructed the Committee 
on Legislation to "draft a bill for regulating the busi- 
ness and denning the status of fraternal societies, to be 
submitted to the several legislatures." In this year com- 
menced that systematic and vigorous activity which ever 
afterward characterized the work of the Congress in 
shaping legislation in the several States. 

Attention was given in the 1891 convention of the 
National Fraternal Congress to the subject of uniform 
blanks for reporting to State insurance departments. 
Notwithstanding the opposition of the fraternalists to 
supervision by insurance departments the laws of various 
States required that they report in about the same man- 
ner as required of life insurance companies. In other 
States the insurance departments demanded compliance 
with certain imposed regulations, and the societies, rather 
than contest the matter, submitted. The discussion in 
the convention revealed that the fraternalists considered 
the form of blank used by the New York department 
the most complete and favorable. There was no uni- 
formity among the blanks of the different States. 

Uniform Bill. Up to 1891 the National Fraternal 
Congress was without a settled policy in regard to statu- 
tory legislation. It had issued various kinds of instruc- 



118 FRATERNAL INSURANCE 

tions to its Committee on Legislation, mainly for the 
purpose of forestalling and opposing the bills proposed 
by insurance commissioners and others. Some of the 
leaders insisted that the societies were operating as fra- 
ternal, charitable and benevolent institutions and, as such, 
should be entirely exempt from the customary regula- 
tions imposed upon insurance organizations. Yet the 
fraternal system needed protection against fraudulent 
concerns masquerading as fraternities, as already stated 
in this volume. It discovered also that as long as the 
societies possessed no positive and agreed plan for legis- 
lation they were constantly subjected to legislative at- 
- tacks. Therefore, in 1891, the Congress authorized the 
appointment of a Special Committee to draft a Uniform 
Bill. 

At this time twenty-eight societies were represented in 
the National Fraternal Congress. Their combined 
membership was about 1,250,000. Among those which 
were still doing business when this work was written in 
1919 were the following: Ancient Order of United 
Workmen, Royal Arcanum, National Union Assurance 
Society, The Maccabees, Royal Templars of Temperance, 
Fraternal Mystic Circle, Knights of Pythias Insurance 
Department, Protected Home Circle, Artisans Order of 
Mutual Protection, Woodmen of the World, Independent 
Order of Foresters. 

The Chairman of the Committee on Uniform Law was 
John.Haskell Butler, representing the Royal Arcanum, 
and an eminent attorney of Boston, Mass. This Com- 
mittee was consolidated with the standing Committee on 
Legislation in 1892. It reported a model bill of fifteen 
sections entitled, "An Act Regulating Fraternal Bene- 
ficiary Societies, Orders or Associations." It was known 



LEGISLATION AND SUPERVISION 119 

as the N. F. C. Uniform Bill and has been the model 
from which subsequent bills have been written. 

A synopsis of the Uniform Bill prepared by Abb 
Landis is as follows: 

Section 1. A fraternal beneficiary association is here- 
by declared to be a corporation, society or voluntary 
association, formed or organized and carried on for the 
sole benefit of its members and their beneficiaries, and 
not for profit. Each association shall have a Ibdge sys- 
tem, with ritualistic form of work and representative 
form of government, and shall make provision for the 
payment of benefits in case of sickness, disability or 
death of its members, subject to their compliance with 
its constitution and laws. The fund from which the 
payment of such benefits shall be made and the fund 
from which the expenses of such association shall be de- 
frayed shall be derived from assessments or dues col- 
lected from its members. Payment of death benefits 
shall be to the families, heirs, blood relatives, affianced 
husband, affianced wife of, or to persons dependent upon 
the member. Such associations shall be governed by this 
Act and shall be exempt from the provisions of insurance 
laws of this State, and no law hereafter passed shall 
apply to them unless they be expressly designated 
therein. 

Section 2 provided that all associations then doing 
business in the State, and coming within the description 
of Section 1, may continue such business. 

Section 3 provides that any association coming within 
the description of Section 1, organized in another State 
or Province, but not then doing business in the State, 
should be admitted on filing copy of charter, etc., and 
paying prescribed fees. 



120 FRATERNAL INSURANCE 

Section 4 provides for an annual report to be filed by 
March 1st and giving details of conditions under twenty- 
five items specified in the Bill. The Commissioner of 
Insurance is empowered to require any additional infor- 
mation "in relation to its doings or condition, or any 
other matter connected with its transactions relative to 
the business contemplated by this Act, and such officers 
of such associations as the Commissioner of Insurance 
may require shall promptly reply in writing, under oath, 
to all such inquiries." 

Section 5 provides that the Commissioner of Insurance 
shall be appointed as attorney to accept service of any 
legal action. 

Section 6 provides for the issuance of a license. 

Section 7 provides for incorporation. 

Section 8. Such associations shall not employ paid 
agents in soliciting or procuring members except in the 
organizing or building up of subordinate bodies or grant- 
ing members inducements to procure new members. 

Section 9. No contract with any such association shall 
be valid when there is a contract, agreement or under- 
standing between the member and beneficiary that the 
beneficiary or any person for him shall pay such mem- 
ber's assessments and dues, or either of them. 

Section 10. The money or other benefit, charity, re- 
lief or aid to be paid, provided or rendered by any as- 
sociation authorized to do business under this Act shall 
not be liable to attachment by trustee, garnishee or other 
process and shall not be seized, taken, appropriated or 
applied by any legal or equitable prqcess, or by operation 
of law to pay any debt or liability of a certificate holder 
or of any beneficiary named in a certificate, or of any 
person who may have any right thereunder. 



LEGISLATION AND SUPERVISION 121 

Section 1 1 provides for meeting of the legislative bodies 
in other States or Provinces than where incorporated. 

Section 12 provides penalties for false and fraudulent 
statements. 

Section 13 provides procedure against an association 
for refusing to make report as required. 

Section 14 provides penalty for acting as officer, agent, 
or otherwise, in violation of the law. 

Section 15 provides for the repeal of laws inconsistent 
with the Act, and exempting Masons, Odd Fellows and 
similar orders from the application of the Act. 

The Uniform Bill as reported was referred to a spe- 
cial committee of five to be edited before being printed, 
and M. G. Jeffries, President of the Congress, was ap- 
pointed special representative to attend the next meeting 
of the National Convention of Insurance Commissioners 
and submit it for approval. The following year, 1893, 
the Uniform Bill was enacted into law by the legislature 
of Michigan, and it was adopted the same year with 
some modifications and changes in Illinois and New 
Jersey. At the seventh session of the National Fraternal 
Congress, held in November, 1893, at Cincinnati, Ohio, 
by unanimous vote a recommendation was adopted to 
secure the enactment of the Uniform Bill in States hav- 
ing no laws relating to fraternal benefit societies. 

In 1897 John Haskell Butler, Chairman of the Com- 
mittee on Statutory Legislation,, reported progress in 
obtaining the enactment of the Uniform Bill in various 
States, continuing the work which had been carried on 
since its adoption by the Congress in 1892. In this 
report Mr. Butler stated that the following clause had 
been inserted in the Bill: "Any such Fraternal Benefi- 
ciary Association may create, maintain, disburse and 



122 FRATERNAL INSURANCE 

apply a reserve or emergency fund in accordance with 
its constitution or by-laws." 

This was at the time the Congress was considering the 
project of compiling a table of mortality, and the N. F. 
C. Table was reported the following year. In explanation 
of the change in the Uniform Bill, Mr. Butler said: 
"This was done not only because of a demand therefor, 
which, if refused, might have jeopardized success in 
obtaining the enactment of the law, but, in view of the 
possibility, not to say probability, that many of the fra- 
ternities now associated in the Congress may, in the 
near future, adopt reserve fund provisions, it seems wise 
that statutory permission therefore should exist. The 
Committee ask that their action in this respect be en- 
dorsed, and recommend that the Uniform Bill be amend- 
ed by adding this same provision to the end of Section 
1." Therefore, new legislation proposed by fraternalists 
from this time on provided permission to establish re- 
serve funds. The Constitution and Laws of the Congress 
were amended at the 1897 convention to conform to the 
change in operation thus written into the law. 

"Force Bill." In 1899 the N. F. C. Table of Mortal- 
ity was adopted. In 1900 the National Fraternal Con- 
gress started a movement to require all new societies to 
be organized and those seeking admission to additional 
States to charge rates not less than the rates of the 
N. F. C. Table. The effect of this would have been to 
allow the large and well-established societies to con- 
tinue on cheap rates, while new and expanding societies 
would have had to charge higher rates, with the conse- 
quent handicap in competition. This movement caused 
a division in fraternal ranks, resulting in the formation 
of the Associated Fraternities of America. It also led 



LEGISLATION AND SUPERVISION 123 

to the proposed legislation designated by its opponents 
as the "Force Bill." 

The National Fraternal Congress convention of 1900 
in Boston adopted unanimously a resolution proposed by 
its rate committee which contained the following : "That, 
in its judgment, this Congress should recommend to the 
law-making power of all States and Provinces in the 
enactment of laws that will require all fraternal benefit 
societies thereafter organized and not theretofore ad- 
mitted to do business therein, to adopt rates not lower 
than is demonstrated to be necessary by the following 
(N. F. C.) mortality table, adopted by this Congress at 
its last meeting." 

In accordance with its stand for legislation to impose 
N. F. C. rates on new and expanding societies, the Con- 
gress in the same year applied the same rules to societies 
seeking admission to the Congress. It adopted a resolu- 
tion to this effect upon the recommendation of the Com- 
mittee on Credentials, the recommendation being as fol- 
lows: "Your Committee have become satisfied from an 
examination of some of the societies applying for admis- 
sion that their rates of assessment are inadequate to 
provide for the benefits provided in their laws, but the 
Constitution of the Congress has no requirement or 
standard upon this point. We, therefore, recommend 
that the Committee on Constitution and Laws formulate 
and present for adoption at this session a provision which 
will enable this Committee to refuse admission to future 
applicants for admission to the Congress, when it is 
evident that their table of rates is clearly inadequate to 
provide for the successful carrying out of their contracts 
with their members." 

The National Convention of Insurance Commissioners 



124 FRATERNAL INSURANCE 

aided and approved this stand. The National Fraternal 
Congress had a Committee on Conference with the In- 
surance Commissioners, and in 1900 this committee, re- 
porting on its negotiations with the insurance commis- 
sioners, said: "The joint committee was unanimously 
of the opinion that it would be impracticable to insist 
by statute on any arbitrary rate of assessment for 
societies already organized and doing business, but it 
was the consensus of opinion in the committee (including 
both fraternalists and insurance commissioners) that 
legislation might wisely be sought restricting societies 
hereafter organized, or seeking admission, to transact 
fraternal society business to a minimum rate of assess- 
ment per annum for benefits promised." 

The author realizes that the differences of opinion on 
the "Force Bill" might even today cause acrimonious 
discussion, as they did in the years following the con- 
vention of 1900, and the subject should be handled with 
circumspection. The quotations given above, however, 
are the facts as gleaned from the proceedings of the 
National Fraternal Congress. This stand of the Con- 
gress immediately divided the fraternal societies into two 
camps, and in the following month of March the As- 
sociated Fraternities of America was organized in pro- 
test, as related in a preceding chapter. Later on the 
National Fraternal Congress adopted a resolution declar- 
ing that all societies should adopt adequate rates by 
1905. 

In its declaration of principles, adopted in 1901, the 
Associated Fraternities of America stated its belief that 
"all societies should charge adequate mortality rates for 
their promised benefits," but declared its "uncompromis- 
ing opposition to any and all legislation which would 



LEGISLATION AND SUPERVISION 125 

tend to restrict the rights of the membership of our 
society to self-government, and denounce as unwise, 
unfair and against public policy any statutory enact- 
ments for government and control of fraternal associa- 
tions which do not apply expressly to all societies with 
equal force and effect." 

Abb Landis has expressed an opinion of the move- 
ment under consideration as follows : "It is difficult to 
defend the position that adequate rates should be applied 
to new organizations and not applied to the new members 
of old organizations." Nearly twenty years after the 
resolution was adopted by the National Fraternal Con- 
gress it is difficult to understand why it was done. Surely 
it has no standing on the principles of fraternalism or 
ethics. Its disruption of fraternal forces might have 
been foreseen and avoided. It is probable that the 
leaders of the N. F. C. used this plan as an entering 
wedge for the general adoption of rates based on the 
N. F. C. Table of Mortality. Many mistakes have been 
made in the long fight to attain sounder methods of oper- 
ation, and this may be counted as one of them. 

There was rivalry and contention between the Na- 
tional Fraternal Congress and the Associated Frater- 
nities of America for ten years. The latter drafted a 
model bill for submission to the several legislatures, and 
this was opposed by the N. F. C. However, to the credit 
of fraternity, it must be recorded that both maintained 
conference committees for negotiation on various topics. 
When fraternalism was assailed they worked hand in 
hand. But the differences of opinion expressed to in- 
surance commissioners and in legislative hearings were 
a handicap to real progress. 



126 FRATERNAL INSURANCE 

Mobile Bill. A sentiment grew in favor of having 
the societies adopt a reserve plan by which they could 
furnish life insurance protection on level rates, and this 
was to be attained by legislation. The State statutes were 
to be invoked to require the societies to adopt a solvent 
plan of operation, and they were to be tested by valuation. 
In the ten years following the adoption of the N. F. C. 
Table of Mortality fraternal leaders, as well as members 
in the ranks, were educated to the fact that a level rate 
requires the accumulation of a reserve. The feeling was 
expressed that all societies should be treated alike in a 
model bill to be drafted in combination with the Na- 
tional Convention of Insurance Commissioners and that, 
for the good of the fraternal system, unsound plans of 
operation should be abandoned. These sentiments led 
to the drafting of the Mobile Bill. 

The National Convention of Insurance Commissioners 
met at Mobile, Ala., in September, 1910. At this meet- 
ing appeared committees representing the National Fra- 
ternal Congress and the Associated Fraternities of 
America, and joint meetings were held with a committee 
of insurance commissioners. The preliminary work had 
been accomplished. It had taken several years to get 
the proposed bill into shape, and the principle of valu- 
ation had been discussed and approved by the two fra- 
ternal organizations. Reau E. Folk, Chairman of the 
Fraternal Committee of insurance commissioners, had 
announced : "It should be distinctly borne in mind that 
the commissioners are in no hostile attitude toward the 
fraternal benefit societies of America. They recognize 
the fraternal benefit system as a great source of benefi- 
cence in our civilization and as one calculated to render 
efficient aid to the highest purposes of society. It is 



LEGISLATION AND SUPERVISION 127 

their earnest desire to see the system placed upon a basis 
which will insure its stability for all time to come." 

At the conference in Mobile with the insurance com- 
missioners the representatives of the National Fraternal 
Congress were Charles E. Piper and Abb Landis. The 
representatives of the Associated Fraternities were 
Arthur Burnett, Benjamin D. Smith, Lee W. Squier, 
Robert S. lies and George Dyre Eldridge.' 

The Mobile Bill was adopted by the National Con- 
vention of Insurance Commissioners on September 28, 
1910. It represented complete unity between the leading 
fraternal organizations and the insurance commissioners. 
It established new principles and requirements in fra-; 
ternal operation and is considered today as a landmark 
in fraternal progress. 

The bill included the accepted features of definition 
and supervision which had been evolved through twenty 
years of rulings and legislation. In addition, it estab- 
lished requirements for valuation and publicity as to 
financial condition, and the societies were required to 
improve their degrees of solvency by five per cent, every 
three years. It permitted the granting of extended and 
paid-up protection, as well as withdrawal equities based 
on reserves. It recognized the N. F. C. Table of Mor- 
tality as a minimum basis for the computation of rates, 
but the societies were not limited to this one table ; they 
could value their certificates on this table, or any higher 
table, or a society could use a table based upon its own 
experience of at least twenty years and covering not less 
than one hundred thousand lives. In 1911 the Mobile 
Bill without material amendments was passed by the 
legislatures of and became laws in the States of Alabama, 
California, Colorado, Idaho, Missouri, New York, Ohio, 



128 FRATERNAL INSURANCE 

Oregon, Utah, Washington, Montana, Wisconsin and 
Massachusetts. 

New York Conference Bill. Soon after the approval 
of the Mobile Bill an intense discussion of its most im- 
portant provisions started in fraternal ranks. This was 
based on a study of the plan to insure future security. 
The law provided an annual valuation of each society's 
financial condition on December 31st of each year, and 
it demanded that the society should take such steps as 
would show a five per cent, increase in the degree of 
solvency at each triennial valuation. Careful consider- 
ation of this provision convinced fraternal leaders that 
it was too drastic, inasmuch as no workable method was 
given for assisting old members to make up their de- 
ficiencies through easy stages. Fraternalists became con- 
vinced that different treatment should be accofded old 
and new members, allowing segregation of the different 
classes of members and the funds which they had con- 
tributed. 

Therefore,' several conferences of fraternalists and 
insurance commissioners were held for the purpose of 
discussing the proposed improvements. A new organiza- 
tion was introduced and participated in these negotia- 
tions. This was the Federated Fraternities. It was 
opposed to the Mobile Bill. It would not have co- 
operated in securing legislation so long as this bill was 
the approved standard of the insurance commissioners. 
The final conference, held in New York City on the 3rd 
and 4th of December, 1912, was participated in by 
representatives of The National Convention of Insurance 
Commissioners, .the National Fraternal Congress, the As- 
sociated Fraternities of America, and the Federated 
Fraternities. Agreement was reached on amendments 



LEGISLATION AND SUPERVISION 129 

to the bill adopted at Mobile and to distinguish it from 
the original measure the revised bill is called the New 
York Conference Bill. 

The principal changes made at the New York con- 
ference consisted of an amendment to Section 23a, among 
other amendments, and the addition of Section 23b. The 
result was that the fraternal system came into possession 
of a model bill for legislation upon which all interests 
were united. It prescribed definite rules for future oper- 
ation and gave a workable system for readjustment, by 
which the societies could attain a solvent and permanent 
system. The amendment to Section 23a provided that 
the triennial valuation should show a degree of solvency 
in which no reduction had been made in the three-year 
period, instead of the improvement of five per cent, in 
the ratio every three years. Section 23b provided for 
valuation on the "accumulation basis," in which con- 
sideration is given to net contributions, with net interest 
earned, as credits, and a share of the death losses of 
each year as a liability, with the balance carried to the 
member's credit. It also permitted segregation of the 
different funds of a society according to the different 
classes, each class separate as if it were an independent 
society, and the required reserve accumulation of each 
class set apart and not mingled with the assets of x other 
classes of the society. The factor of segregation was 
established in order that new members coming into a 
society on adequate rates would not be robbed of their 
reserve accumulations in order to make up the deficiencies 
of those who were paying inadequate rates. 

The New York Conference Bill is the fraternal law of 
the land. After its adoption the first effort of frater- 
nalists and insurance commissioners was to obtain the 



130 FRATERNAL INSURANCE 

amending of the Mobile Bill in the thirteen States which 
had enacted the previous measure into law. Their efforts 
have been successful and the Mobile Bill ceased to be 
a law in any State in 1919. The New York Conference 
Bill was extended to other States, however, and today 
it is on the statutes of Alabama, Arizona, Arkansas, 
California, Colorado, Connecticut, Florida, Georgia, 
Idaho, Indiana, Kentucky, Louisiana, Maryland, Mass- 
achusetts, Michigan, Mississippi, Missouri, Montana, 
New Hampshire, New York, North Carolina, North 
Dakota, Ohio, Oregon, Rhode Island, South Carolina, 
South Dakota, Tennessee, Texas, Utah, Virginia, Wash- 
ington, West Virginia, Wisconsin and Wyoming. 

The following States still have in force the old Na- 
tional Fraternal Congress Uniform Bill which, in respect 
to methods of operation and requirements for super- 
vision, is the same as the New York Conference Bill, 
except that it makes no provision for valuation and 
publicity : Iowa, Maine, Minnesota, Oklahoma and Ver- 
mont. 

Influence of the Fraternal System in Legislation. 
The progress of the fraternal system and its achieve- 
ments in legislation have gone hand in hand. Statutes 
sponsored by fraternalists and enacted into law chiefly 
through their influence have, in fact, caused most of the 
improvements in fraternal insurance operation. 

In the legislatures of some States it has been neces- 
sary only for the representatives of the societies to appear 
and ask for the enactment of constructive measures. 
Their requests have met with prompt response. In other 
States they have been opposed by powerful influences 
supported by the commercial life insurance companies, 
and the fraternalists have had to fight vigorously for 



LEGISLATION AND SUPERVISION 131 

what they obtained. Some of the State insurance de- 
partments have been antagonistic to fraternal societies, 
and it is easy to trace this antagonism to the same source 
from which the legislative opposition springs. 

But the fraternal system possesses a powerful influence 
of its own. This is based on the fact that practically all 
of the members of such societies are voters, and when 
they vote together their influence at the polls is tre- 
mendous. It has been necessary in several instances 
to organize this influence in States where public officials 
were not giving fraternalism fair treatment. Another 
factor of the influence exerted by the societies is in the 
fact that fraternalists are often very active in politics. 
Some of the societies claim as members United States 
senators, governors, congressmen and State legislators. 
The author has in mind the legislature of one State in 
which all the members of both Senate and House were 
members of one or more of the established fraternal 
benefit societies. 

Organized fraternalism takes little interest in legis- 
lation which has no effect on the operation of societies,, 
but representatives of the system keep in close touch with 
National legislation at Washington, but their interest is 
directed mainly to obtaining exemptions from taxation 
and for maintaining the second-class mailing privileges 
for the official society journals. Recently the societies 
have waged a strong fight against social and government 
insurance. There is an element of danger to the future 
operation of fraternal benefit societies in such insurance, 
but their opposition is based on the desire to conserve 
American initiative and freedom. Several million mem- 
bers are convinced that socialistic and paternalistic legis- 
lation is a menace to them and their children, and their 
opposition is expressed through the societies. 



132 FRATERNAL INSURANCE 

Besides the results attained in extending the field of 
the New York Conference Bill, legislative representatives 
of fraternalism have obtained laws in a majority of the 
States since 1916 which permit the societies to write 
juvenile insurance. This measure is known as the Whole 
Family Protection Bill, because it enables all the mem- 
bers of a family to secure protection in a benefit society. 
This movement is described in detail in another chapter. 



CHAPTER VIII 
THE NEW YORK CONFERENCE BILL 

The complete text of the New York Conference Bill 
is given in this chapter. This is the form in which it 
has been approved by the various organizations respon- 
sible for its drafting. The legislatures of some of the 
States in which it has been enacted into law have made 
minor changes, but the most important provisions have 
been retained intact. As originally adopted by the Na- 
tional Convention of Insurance Commissioners at Mobile, 
Ala., September 28, 1910, the bill was concurred in by 
the conference committees representing the Associated 
Fraternities of America and the National Fraternal Con- 
gress. It was called the Mobile Bill. 

The National Convention of Insurance Commission- 
ers, in conference December llth and 12th, 1911, with 
representatives of the National Fraternal Congress and 
the Associated Fraternities of America, confirmed cor- 
rections in the bill as printed at Mobile, and also agreed 
upon two changes. 

At the meeting of the National Convention of Insur- 
ance Commissioners in New York City, December 3rd 
and 4th, 1912, various amendments were considered. 
Amendments to Sections 23a and 29, and a new Section, 
23b, were unanimously adopted by the Convention and 
unanimously approved and recommended for enactment 
into law by the representatives of the National Fraternal 
Congress, Associated Fraternities of America and the 
Federated Fraternities in conference with the commis- 
sioners. 

133 



134 FRATERNAL INSURANCE 

To distinguish this from the original Mobile Bill it 
has been agreed to call it the New York Conference 
Bill. 

A BILL 
For the Regulation and Control of Fraternal Benefit Societies 

(Caption and Enacting Clause to Conform to Requirements of 
State .Where Introduced.) 

Section 1. (Fraternal Benefit Societies Defined.) Any cor- 
poration, society, order or voluntary association, without cap- 
ital stock, organized and carried on solely for the mutual bene- 
fit of its members and their beneficiaries, and not for profit, 
and having a lodge system with ritualistic form of work and 
representative form of government, and which shall make pro- 
vision for the payment of benefits in accordance with Section 5 
hereof, is hereby declared to be a Fraternal Benefit Society. 

Section 2. (Lodge System Defined.) Any society having a 
supreme governing or legislative body and subordinate lodges 
or branches by whatever name known, into which members 
shall be elected, initiated and admitted in accordance with its 
constitution, laws, rules, regulations and prescribed ritualis- 
tic ceremonies, which subordinate lodges or branches shall be 
required by the laws of such society to hold regular or stated 
meetings at least once in each month, shall be deemed to be 
operating on the lodge system. 

Section 3. (Representative Form of Government Defined.) 
Any such society shall be deemed to have a representative form 
of government when it shall provide in its constitution and 
laws for a supreme legislative or governing body, composed of 
representatives elected either by the members or by delegates 
elected directly or indirectly by the members, together x with 
such other members as may be prescribed by its constitution 
and laws ; provided, that the elective members shall constitute 
a majority in number and have not less than two-thirds of the 
votes, nor less than the votes required to amend its constitu- 
tion and laws; and provided further, that the meetings of the 
Supreme or governing body, and the election of officers, repre- 



NEW YORK CONFERENCE BILL 135 

sentatives or delegates shall be held as often as once in four 
years. The members, officers, representatives or delegates of 
a fraternal benefit society shall not vote by proxy. 

Section 4. (Exemptions.) Except as herein provided, such 
societies shall be governed by this Act, and shall be exempt 
from all provisions of the insurance laws of this State, not only 
in governmental relations with the State, but for every other 
purpose, and no law hereafter enacted shall apply to them, 
unless they be expressly designated therein. 

Section 5. (Benefits.) Subsection 1. Every Society transact- 
ing business under this act shall provide for the payment of 
death benefits, and may provide for the payment of benefits in 
case of temporary or permanent physical disability, either as the 
result of disease, accident or old age; provided, the period of 
life at which the payment of benefits for disability on account 
of old age shall commence, shall not be under seventy years, 
and may provide for monuments or tombstones to the mem- 
ory of its deceased members, and for the payment of funeral 
benefits. Such Society shall have the power to give a mem- 
ber, when permanently disabled or on attaining the age of 
seventy, all, or such portion of the face value of his cer- 
tificate as t|ie laws of the Society may provide; provided, that 
nothing in this act contained shall be so construed as to pre- 
vent the issuing of benefit certificates for a term of years 
less than the whole of life which are payable upon the. death or 
disability of the member occuring within the term for which 
the benefit certificate may be issued. Such Society, shall, 
upon written application of the member, have the power to 
accept a part of the periodical contributions in cash, and 
charge the remainder, not exceeding one-half of the periodical 
contribution, against the certificate with interest payable or 
compounded annually at a rate not lower than four per cent, 
per annum; provided, that this privilege shall not be granted 
except to Societies which have readjusted or may hereafter 
readjust their rates of contributions, and to contracts affected 
by such readjustment. 

Subsection 2. Any Society which shall show by the annual 
valuation hereinafter provided for that it is accumulating and 
maintaining the reserve not lower than the usual reserve com- 



136 FRATERNAL INSURANCE 

puted by the American Experience Table and four per cent, 
interest, may grant to its members extended and paid-up pro- 
tection, or such withdrawal equities as its constitution and laws 
may provide; provided, that such grants shall in no case ex- 
ceed in value the portion of the reserve to the credit of such 
members to whom they are made. 

Section 6. (Beneficiaries.) The payment of death benefits 
shall be confined to wife, husband, relative by blood to the 
fourth degree, father-in-law, mother-in-law, son-in-law, daugh- 
ter-in-law, stepfather, stepmother, stepchildren, children by 
legal adoption, or to a person or persons dependent upon the 
member; provided, that if after the issuance of the original 
certificate the member shall become dependent upon an incor- 
porated charitable institution, he shall have the privilege with 
the consent of the society, to make such institution his bene- 
ficiary. Within the above restrictions each member shall have 
the right to designate his beneficiary, and, from time to time, 
have the same changed in accordance with the laws, rules or 
regulations of the society, and no beneficiary shall have or obtain 
any vested interest in the said benefit until the same has become 
due and payable upon the death of the said member; provided, 
that any society may, by its laws, limit the scope of bene- 
ficiaries within the above classes. 

Section 7. (Qualifications for Membership.) Any society 
may admit to beneficial membership any person not less than 
sixteen and not more than sixty years of age, who has been 
examined by a legally qualified physician, and whose examina- 
tion has been supervised and approved in accordance with the 
laws of the society; provided, that any beneficiary member 
of such society who shall apply for a certificate providing 
for disability benefits, need not be required to pass an addi- 
tional medical examination therefor. Nothing herein contained 
shall prevent such society from accepting general or social mem- 
bers. 

Section 8. (Certificate.) Every certificate issued by any 
such society shall specify the amount of benefit provided there- 
by, and shall provide that the certificate, the charter or articles 
of incorporation, or, if a voluntary association, the articles of 
association, the constitution and laws of the society and the 



NEW YORK CONFERENCE BILL 137 

application for membership and medical examination, signed by 
the applicant, and all amendments to each thereof, shall con- 
stitute the agreement between the society and the member, and 
copies of the same certified by the secretary of the society, 
or corresponding officer, shall be received in evidence of the 
terms and conditions thereof, and any changes, additions or 
amendments to said charter or articles of incorporation, or 
articles of association, if a voluntary association, constitution 
or laws duly made or enacted subsequent to the issuance of the 
benefit certificate shall bind the member and his beneficiaries, 
and shall govern and control the agreement in all respects the 
same as though such changes, additions or amendments had 
been made prior to and were in force at the time of the appli- 
cation for membership. 

Section 9. (Funds.) Subsection 1. Any society may cre- 
ate, maintain, invest, disburse and apply an emergency, surplus 
or other similar fund in accordance with its laws. Unless 
otherwise provided in the contract, such funds shall be held, 
invested, and disbursed for the use and benefit of the society, 
and no member or beneficiary shall have or acquire individual 
rights therein or become entitled to any apportionment or the 
surrender of any part thereof, except as provided in sub- 
section 2 of section 5 of this act The funds from which bene- 
fits shall be paid and the funds from which the expenses of the 
society shall be defrayed, shall be derived from periodical or 
other payments by the members of the society and accretions 
of said funds; provided, that no Society shall hereafter be in- 
corporated which does not provide for stated periodical con- 
tributions sufficient to provide for meeting the mortuary ob- 
ligations contracted, when valued upon the basis of the National 
Fraternal Congress Table of Mortality as adopted by the 
National Fraternal Congress, August 23, 1899, or any higher 
standard with interest assumption not more than four per cent, 
per annum, nor shall any such society be admitted to transact 
business in this state which does not provide for stated 
periodical contributions sufficient to provide for meeting ths 
mortuary obligations contracted when valued upon one of the 
bases named in Section 23a of this bill and applicable there- 
under to such society. No society, domestic or foreign, shall 



138 FRATERNAL INSURANCE 

hereafter be incorporated or admitted to write or accept mem- 
bers for permanent disability benefits except upon tables based 
upon reliable experience with an interest assumption not higher 
than four per cent. 

Subsection 2. Deferred payments or installments of claims 
shall be considered as fixed liabilities on the happening of the 
contingency upon which such payments or installments are 
thereafter to be paid. Such liability shall be the present value 
of such future payments or installments upon the rate of inter- 
est and mortality assumed by the society for valuation, and 
every society shall maintain a fund sufficient to meet such 
liability regardless of proposed future collections to meet any 
such liabilities. 

Section 10. (Investments.) Every society shall invest its 
funds only in securities permitted by the laws of this State for 
the investment of the assets of life insurance companies; pro- 
vided, that any foreign society permitted or seeking to do 
business in this State, which invests its funds in accordance 
with the laws of the State in which it is incorporated, shall be 
held to meet the requirements of this act for the investment of 
funds. 

Section 11. (Distribution of Funds.) Every provision of 
the laws of the society for payment by members of such society, 
in whatever form made, shall distinctly state the purpose of 
the same and the proportion thereof which may be used for 
expenses, and no part of the money collected for mortuary or 
disability purposes or the net accretions of either or any of 
said funds shall be used for expenses. 

Section 12. (Organization.) Seven or more persons, citi- 
zens of the United States, and a majority of whom are citizens 
of this State, who desire to form a Fraternal Benefit Society, 
as defined by this act, may make and sign (giving their ad- 
dresses) and acknowledge before some officer competent to 
take acknowledgment of deeds, articles of incorporation, in 
which shall be stated : 

1st. The proposed corporate name of the society, which shall 
not so closely resemble the name of any society or insurance 
company already transacting business in this State as to mis- 
lead the public or to lead to confusion: 



NEW YORK CONFERENCE BILL 139 

2nd. The purpose for which it is formed which shall not 
include more liberal powers than are granted by this act, pro- 
vided that any lawful social, intellectual, educational, charitable, 
benevolent, moral or religious advantages may be set forth 
among the purposes of the society and the mode in which its 
corporate powers are to be exercised: 

3rd. The names, residences and official titles of all the offi- 
cers, trustees, directors or other persons who are to have and 
exercise the general control and management of the affairs 
and funds of the society for the first year or until the ensuing 
election at which all such officers shall be elected by the su- 
preme legislative or governing body, which election shall be 
held not later than one year from the date of the issuance of 
the permanent certificate. 

Such articles of incorporation and duly certified copies of 
the constitution and laws, rules and regulations, and copies of 
all proposed forms of benefit certificates, applications therefor 
and circulars to be issued by such society, and a bond in the 
sum of five thousand dollars, with sureties approved by the 
Superintendent of Insurance, conditioned upon the return of 
the advance payments, as provided in this section, to appli- 
cants, if the organization is not completed within one year, 
shall be filed with the Superintendent of Insurance, who may 
require such further information as he deems necessary, and 
if the purposes of the society conform to the requirements of 
this act, and all provisions of law have been complied with, the 
Superintendent of Insurance shall so certify and retain and 
record (or file), the articles of incorporation, and furnish the 
incorporators a preliminary certificate authorizing said society 
to solicit members as hereinafter provided. 

Upon receipt of said certificate from the Superintendent of 
Insurance, said society may solicit members for the purpose 
of completing its organization and shall collect from each 
applicant the amount of not less than one regular monthly pay- 
ment, in accordance with its table of rates as provided by its 
constitution and laws, and shall issue to each such applicant 
a receipt for the amount so collected. But no such society 
shall incur any liability other than for such advanced pay- 
ments, nor issue any benefit certificate nor pay or allow, or 



140 FRATERNAL INSURANCE 

offer or promise to pay or allow, to any person any death or 
disability benefit until actual bona fide applications for death 
benefit certificates have been secured upon at least five hun- 
dred lives for at least one thousand dollars each, and all such 
applicants for death benefits shall have been regularly exam- 
ined by legally qualified practicing physicians, and certificates 
of such examinations have been duly filed and approved by 
the chief medical examiner of such society; nor until there 
shall be established ten subordinate lodges or branches into 
which said five hundred applicants have been initiated; nor 
until there has been submitted to the Superintendent of Insur- 
ance, under oath of the president and secretary, or correspond- 
ing officers of such society, a list of such applicants, giving- 
their names, addresses, date examined, date approved, date in- 
itiated, name and number of the subordinate branch of which 
each applicant is a member, amount of benefits to be granted, 
rate of stated periodical contributions, which shall be sufficient 
to provide for meeting the mortuary obligation contracted,, 
when valued for death benefits upon the basis of the National 
Fraternal Congress Table of Mortality, as adopted by the Na- 
tional Fraternal Congress August 23, 1899, or any higher 
standard at the option of the society, and for disability bene- 
fits by tables based upon reliable experience and for com- 
bined death and permanent total disability benefits by tables 
based upon reliable experience, with an interest assumption not 
higher than four per cent, per annum; nor until it shall be 
shown to the Superintendent of Insurance by the sworn state- 
ment of the treasurer, or corresponding officer of such society, 
that at least five hundred applicants have each paid in cash 
at least one regular monthly payment as herein provided per 
one thousand dollars of indemnity to be effected, which payments 
in the aggregate shall amount to at least twenty-five hundred 
dollars; all of which shall be credited to the mortuary or dis- 
ability fund on account of such applicants, and no part of which 
may be used for expenses. 

Said advanced payments shall, during the period of organi- 
zation, be held in trust, and, if the organization is not com- 
pleted within one year as hereinafter provided, returned to- 
said applicants. 



NEW YORK CONFERENCE BILL 141 

The Superintendent of Insurance may make such examina- 
tion and require such further information as he deems ad- 
visable, and, upon presentation of satisfactory evidence that the 
society has complied with all the provisions of law, he shall 
issue to such society a certicate to that effect. Such certifi- 
cate shall be prima facie evidence of the existence of such 
society at the date of such certificate. The Superintendent of 
Insurance shall cause a record of such certificate to be made 
and a certified copy of such record may be given in evidence 
with like effect as the original certificate. 

No preliminary certificate granted under the provisions of 
this section shall be valid after one year from its date or after 
such further period, not exceeding one year, as may be author- 
ized by the Superintendent of Insurance, upon cause shown; 
unless the five hundred applicants herein required have been 
secured and the organization has been completed as herein 
provided; and the articles of incorporation and all proceedings 
thereunder shall become null and void in one year from the 
date of said preliminary certificate, or at the expiration of 
said extended period, unless such society shall have completed 
its organization and commenced business as herein provided. 
When any domestic society shall have discontinued business 
for the period of one year, or has less than 400 members, its 
charter shall become null and void. 

Every such society shall have the power to make a constitu- 
tion and by-laws for the government of the society, the ad- 
mission of its members, the management of its affairs and the 
fixing and readjusting of the rates of contribution of its mem- 
bers from time to time; and it shall have the power to change, 
alter, add to or amend such constitution and by-laws and shall 
have such other powers as are necessary and incidental to 
carrying into effect the objects and purposes of the society. 

Section 13. (Powers Retained Reincorporation Amend- 
ments.) Any society now engaged in transacting business in 
this State may exercise, after the passage of this act, all of 
the rights conferred thereby, and all of the rights, powers and 
privileges now exercised or possessed by it under its charter 
or articles of incorporation not inconsistent with this act, if 
incorporated; or, if it be a voluntary association, it may in- 



142 FRATERNAL INSURANCE^ 

corporate heretmder. But no society already organized shall 
be required to reincorporate hereunder, and any such society 
may amend its articles of incorporation from time to time in 
the manner provided therein or in its constitution and laws, 
and all such amendments shall be filed with the Superintendent 
of Insurance and shall become operative upon such filing, unless 
a later time be provided in such amendments or in its articles 
of incorporation, constitution or laws. 

Section 14. (Mergers and Transfers.) No domestic society 
shall merge with or accept the transfer of the membership or 
funds of any other society unless such merger or transfer is 
evidenced by a contract in writing, setting out in full the terms 
and conditions of such merger or transfer, and filed with the 
Superintendent of Insurance of this State, together with a 
sworn statement of the financial condition of each of said 
societies, by its president and secretary, or corresponding offi- 
cers, and a certificate of such officers, duly verified under oath 
of said officers of each of the contracting societies, that such 
merger or transfer has been approved by a vote of two-thirds of 
the members of the supreme legislative or governing body of 
each of said societies. 

Upon the submission of said contract, financial statements and 
certificates, the Superintendent of Insurance shall examine the 
same, and, if he shall find such financial statements to be cor- 
rect and the said contract to be in conformity with the provi- 
sions of this section, and that such merger or transfer is just 
and equitable to the members of each of said societies, he shall 
approve said merger or transfer, issue his certificate to that 
effect and thereupon the said contract of merger or transfer 
shall be of full force and effect. 

In case such contract is not approved, the fact of its sub- 
mission and its contents shall not be disclosed by the Super- 
intendent of Insurance. 

Section 15. (Annual License.) Societies which are now 
authorized to transact business in this State may continue such 
business until the first day of April next succeeding the pas- 
sage of this Act, and the authority of such societies may there- 
after be renewed annually, but in all cases to terminate on the 
first day of the succeeding April; provided, however, the 



NEW YORK CONFERENCE BILL 143 

license shall continue in full force and effect until the new 
license be issued or specifically refused. For each such license 
or renewal the society shall pay the Superintendent of Insur- 
ance dollars. A duly certified copy or 

duplicate of such license shall be prima facie evidence that the 
licensee is a Fraternal Benefit Society within the meaning of 
this act. 

Section 16. (Admission of Foreign Society.) No foreign 
society now transacting business organized prior to the pas- 
sage of this Act, which is not now authorized to transact busi- 
ness in this State, shall transact any business herein without 
a license from the Superintendent of Insurance. Any such 
society shall be entitled to a license to transact business within 
this State upon filing with the Superintendent a duly certified 
copy of its charter or articles of association ; a copy of its con- 
stitution and laws, certified by its secretary or corresponding 
officer; a power of attorney to the Superintendent as herein- 
after provided; a statement of its business under oath of its 
president and secretary, or corresponding officers, in the form 
required by the Superintendent, duly verified by an examina- 
tion made by the supervising insurance official of its home 
State or other State satisfactory to the Superintendent of In- 
surance of this State; a certificate from the proper official in 
its home State, province or country, that the society is legally 
organized; a copy of its contract, which must show that bene- 
fits are provided for by periodical, or other payments by per- 
sons holding similar contracts; and upon furnishing the Super- 
intendent such other information as he may deem necessary 
to a proper exhibt of its business and plan of working, and 
upon showing that its assets are invested in accordance with 
the laws of the State, territory, district, province or country 
where it is organized, he shall issue a license to such society 
to do business in this State until the first day of the succeeding 
April, and such license shall, upon compliance with the pro- 
visions of this Act, be renewed annually, but in all cases to 
terminate on the first day of the succeeding April; provided, 
however, that license shall continue in full force and effect 
until the new license be issued or specifically refused. Any 
foreign society desiring admission to this State, shall have 



144 FRATERNAL INSURANCE 

the qualifications required of domestic societies organized under 
this Act, upon a valuation by any one of the standards author- 
ized in section 23a of this Act, and have its assets invested as 
required by the laws of the State, territory, district, country, 
or province where it is organized. For each such license or 
renewal the society shall pay the superintendent dol- 
lars. When the Superintendent refuses to license any society, 
or revokes its authority to do business in this State, he shall 
reduce his ruling, order or decision to writing and file the same 
in his office, and shall furnish a copy thereof, together with a 
statement of his reason, to the officers of the society, upon 
request, and the action of the Superintendent shall be review- 
able by proper proceedings in any court of competent jurisdic- 
tion within the State; provided, however, that nothing contained 
in this or the preceding section shall be taken or construed as 
preventing any such society from continuing in good faith all 
contracts made in this State during the time such society was 
legally authorized to transact business herein. 

Section 17. (Power of Attorney and Service of Process.) 
Every society, whether domestic or foreign, now transacting 
business in this State shall, within thirty days after the pas- 
sage of this Act, and every such society hereafter applying for 
admission, shall, before being licensed, appoint in writing the 
Superintendent of Insurance and his successors in office to be 
its true and lawful attorney, upon whom all legal process 
in any action or proceeding against it shall be served, and in 
such writing shall agree that any lawful process against it 
which is served upon such attorney shall be of the same legal 
force and validity as is served upon the society and that the 
authority shall continue in force so long as any liability re- 
mains outstanding in this State. 

Copies of such appointment, certified by said Superintendent 
of Insurance, shall be deemed sufficient evidence thereof and 
shall be admitted in evidence with the same force and effect 
as the original thereof might be admitted. Service shall only 
be made upon such attorney, must be made in duplicate upon 
the Superintendent of Insurance, or, in his absence upon the 
person in charge of his office, and shall be deemed sufficient 
service upon such society; provided, however, that no such 



NEW YORK CONFERENCE BILL 145 

service shall be valid or binding against any such society when 
it is required thereunder to file its answer, pleading or defense 
in less than thirty days from the date of mailing the copy of 
such service to such society. When legal process against any 
such society is served upon said Superintendent of Insurance 
he shall forthwith forward by registered mail one of the dupli- 
cate copies prepaid and directed to its secretary or correspond- 
ing officer. Legal process shall not be served upon any such 
society except in the manner provided herein. 

Section 18. (Place of Meeting Location of Office.) Any 
domestic society may provide that the meetings of its legis- 
lative or governing body may be held in any State, district/ 
province or territory wherein such society has subordinate 
branches, and all business transacted at such meetings shall 
be as valid in all respects as if such meetings were held in 
this State; but its principal office shall be located in this 
State. 

Section 19. (No Personal Liability.) Officers and mem- 
bers of the Supreme, grand or any subordinate body of any 
such incorporated society shall not be individually liable for 
the payment of any disability or death benefit provided for in 
the laws and agreements of such society; but the same shall 
be payable only out of the funds of such society and in the man- 
ner provided by its laws. 

Section 20. (Waiver of the Provisions of the Laws.) The 
constitution and laws of the society may provide that no sub- 
ordinate body, nor any of its subordinate officers or members 
shall have the power or authority to waive any of the provi- 
sions of the laws and constitution of the society, and the same 
shall be binding on the society and each and every member 
thereof and on all beneficiaries of members. 

Section 21. (Benefit not Attachable.) No money or other 
benefit, charity or relief or aid to be paid, provided or rendered 
by any such society shall be liable to attachment, garnishment or 
other process, or be seized, taken, appropriated or applied by 
any legal or equitable process or operation of law to pay any 
debt or liability of a member or beneficiary, or any other person 
who may have a right thereunder, either before or after pay- 
ment. 



146 FRATERNAL INSURANCE 

Section 22. (Constitution and Laws Amendment.) Every 
society transacting business under this act shall file with the 
Superintendent of Insurance a duly certified copy of all amend- 
ments of or additions to its constitution and laws within ninety 
days after the enactment of the same. Printed copies of the 
constitution and laws as amended, changed or added to, cer- 
tified by the secretary or corresponding officer of the society, 
shall be prima facie evidence of the legal adoption thereof. 

Section 23. (Annual Reports.) Every society transacting 
business in this State shall annually, on or before the first 
day of March, file with the Superintendent of Insurance, in 
such , form as he may require, a statement under oath of its 
president and secretary or corresponding officers, of its condi- 
tion and standing on the thirty-first day of December next pre- 
ceding, and of its transactions for the year ending on that date, 
and also shall furnish such other information as the Superin- 
tendent may deem necessary to a proper exhibit of its business 
and plan of working. The Superintendent may at other times 
require any further statement he may deem necessary to be 
made relating to such society. 

In addition to the annual report herein required, each so- 
ciety shall annually report to the Superintendent a valuation 
of its certificates in force on December 31st, last preceding; 
excluding those issued within the year for which the report 
is filed, in cases where the contributions for the first year in 
whole or in part are used for current mortality and expenses; 
provided, the first report of valuation shall be made as of 
December 31st, 1912. Such report of valuation shall show, as 
contingent liabilities, the present mid-year value of the promised 
benefits provided in the constitution and laws of such society 
under certificates then subject to valuation; and, as contingent 
assets, the present mid-year value of the future net contribu- 
tions provided in the constitution and laws as the same are in 
practice actually collected. At the option of any society, in 
lieu of the above, the valuation may show the net value of 
the certificates subject to valuation hereinbefore provided, and 
said net value, when computed in case of monthly contributions, 
may be the mean of the terminal values for the end of the 
preceding and of the current insurance years. 



NEW YORK CONFERENCE BILL 147 

Such valuation shall be certified by a competent accountant 
or actuary, or, at the request and expense of the society, veri- 
fied by the actuary of the department of insurance of the home 
state of the society, and shall be filed with the Superintendent 
within ninety days after the submission^ of the last preceding 
annual report. The legal minimum standard of valuation for 
all certificates, except for disability benefits, shall be the Na- 
tional Fraternal Congress Table of Mortality as adopted by 
the National Fraternal Congress August 23, 1899, or, at the 
option of the society, any higher table; or, at its option, it may 
use a table based upon the society's own experience of at least 
twenty years and covering not less than one hundred thousand 
lives with interest assumption not more than four per cen- 
tum per annum. Each such valuation report shall set forth 
clearly and fully the mortality and interest basis and the method 
of valuation. Any society providing for disability benefits shall 
keep the net contributions for such benefits in a fund separate 
and apart from all other benefit and expense funds and the 
valuation of all other business of the society; provided, that 
where a combined contribution table is used by a society for both 
death and permanent total disability benefits, the valuation shall 
be according to tables of reliable experience and in such case a 
separation of the funds shall not be required. 

The valuation herein provided for shall not be considered 
or regarded as a test of the financial solvency of the society, 
but each society shall be held to be legally solvent so long 
as the funds in its possession are equal to or in excess of its 
matured liabilities. 

Beginning with the year 1914 a report of such valuation 
and an explanation of the facts concerning the condition of the 
society thereby disclosed shall be printed and mailed to each 
beneficiary member of the society not later than June 1st of 
each year; or, in lieu thereof, such report of valuation and 
showing of the society's condition as thereby disclosed may 
be published in the society's official paper and the issue con- 
taining the same mailed to each beneficiary member of the 
society. The laws of such society shall provide that if the 
stated periodical contributions of the members are insufficient 
to pay all matured death and disability claims in full, and to 



148 FRATERNAL INSURANCE 

provide for the creation and maintenance of the funds required 
by its laws, additional, increased or extra rates of contribution 
shall be collected from the members to meet such deficiency; 
and such laws may provide that, upon the written application 
or consent of the member, his certificate may be charged with 
its proportion of any deficiency disclosed by valuation, with 
interest not exceeding five per centum per annum. 

Section 23 a. (Provisions to Insure Future Security.) If 
the valuation of the certificates, as hereinbefore provided, on 
December 31, 1917, shall show that the present value of future 
net contributions, together with the admitted assets, is less 
than the present value of the promised benefits and accrued 
liabilities, such society shall thereafter maintain said financial 
condition at each succeeding triennial valuation in respect of 
the degree of deficiency as shown in the valuation as of Decem- 
ber 31, 1917. If at any succeeding triennial valuation such so- 
ciety does not show at least the same condition, the Superintend- 
ent shall direct that it thereafter comply with the requirements 
herein specified. If the next succeeding triennial valuation 
after the receipt of such notice shall show that the society 
has failed to maintain the condition required herein, the Super- 
intendent may, in the absence of good cause shown for such 
failure, institute proceedings for the dissolution of such society, 
in accordance with the provision of Sec. 24 of this Act, or in 
the case of a foreign society, its license may be cancelled in 
the manner provided in this Act. 

Any such society, shown by any triennial valuation, subse- 
quent to December 31, 1917, not to have maintained the con- 
dition herein required, shall, within two years thereafter, make 
such improvement as to show a percentage of deficiency not 
greater than as of December 31, 1917, as thereafter, as to all 
new members admitted, be subject, so far as stated rates of 
contributions are concerned, to the provisions of Section 12 of 
this Act, applicable in the organization of new societies; pro- 
vided that the net mortuary or beneficiary contributions and 
funds of such new members shall be kept separate and apart 
from the other funds of the society. If such required im- 
provement is not shown by the succeeding triennial valuation, 
then the said new members may be placed in a separate class 



NEW YORK CONFERENCE BILL 149 

and their certificates valued as an independent society in respect 
of contributions and funds. 

Section 23" b. In lieu of the requirements of sections 23 and 
23a, any society accepting in its laws the provisions of this 
section may value its certificates on a basis, herein designated 
"accumulation basis," by crediting each member with the net 
amount contributed for each year and with interest at approxi- 
mately the net rate earned and by charging him with his share 
of the losses for each year, herein designated "cost of insur- 
ance" and carrying the balance, if any, to his credit. The 
charge for the cost of insurance may be according to the actual 
experience of the society applied to a table of mortality recog- 
nized by the law of this state, and shall take into consideration 
the amount at risk during each year, which shall be the amount 
payable at death less the credit to the member. Except as 
specifically provided in its articles or laws or contracts no charge 
shall be carried forward from the first valuation hereunder 
against any member for any past share of losses exceeding the 
contributions and credit. If, after the first valuation, any mem- 
ber's share of losses for any year exceeds his credit including 
the contribution for the year, the contribution shall be in- 
creased to cover his share of the losses, and if the credit at the 
time any benefit becomes payable during the lifetime of the 
member, including any available funds does not equal such 
benefit, the contributions to be made by him or on his behalf 
shall be increased by the difference. Any such excess share of 
losses chargeable to any member may be paid out of a fund or 
contributions especially created or required for such purpose. 

Any member may transfer to any plan adopted by the society 
with net rates on which tabular reserves are maintained and oni 
such transfer shall be entitled to make such application of his, 
credit as provided in the laws of the society. 

Certificates issued, rerated or readjusted on a basis providing 
for adequate rates with adequate reserves to mature such cer- 
tificates upon assumptions for mortality and interest recog- 
nized by the law of this state shall be valued on such basis, 
herein designated the "Tabular Basis;" provided that if on the 
first valuation under this section a deficiency in reserve shall 
be shown for any such certificate, the same shall be valued, 
on the accumulation basis. 



ISO FRATERNAL INSURANCE 

Whenever in any society having members upon the tabular 
basis and upon the accumulation basis, the total of all costs 
of insurance provided for any year shall be insufficient to 
meet the actual death and disability losses for the year, the 
deficiency shall be met for the year from the available funds 
after setting aside all credits in the reserve; or from increased 
contributions or by an increase in the number of assessments 
applied to the society as a whole or to classes of members as 
may be specified in its laws. Savings from a lower amount 
of death losses may be returned in like manner as may be speci- 
fied in its laws. j 

If the laws of the society so provide, the assets representing 
the reserves of any separate class of members may be carried 
separately for such class as if in an independent society, and 
the required reserve accumulation of such class so set apart 
shall not thereafter be mingled with the assets of other classes 
of the society. 

A table showing the rates being paid by and the credits to 
individual members at each age and year of entry, and show- 
ing opposite each credit the tabular rates and the tabular reserve 
required, or at the option of the society the required reserve 
on a level rate equivalent to that being paid, according 'to 
assumptions for mortality and interest recognized by the laws 
of this state and adopted by the society, and, in either case, 
including any benefit payable at a specified age or on account 
of old age disability shall be filed by the society with each annual 
report and also be furnished to each member before July 1st 
of each year. 

In lieu of the aforesaid statement there may be furnished 
to each member within the same time a statement giving the 
data aforesaid for such member. No table or statement need 
be made or furnished when the reserves are maintained on 
the tabular basis. 

For this purpose, individual bookkeeping accounts for each 
member shall not be required and all calculations may be made 
by actuarial methods. 

Nothing herein contained shall prevent the maintenance of 
such surplus over and above the credits on the accumulation 
basis and the reserves on the tabular basis as the society may 



NEW YORK CONFERENCE BILL 151 

provide by or pursuant to its laws; nor be construed as giving 
to the individual member any right or claim to any such reserve 
or credit other than in manner as expressed in the contract and 
its laws; nor as making any such reserve or credits a liability in 
determining the legal solvency of the society. 
i Section 24. (Examination of Domestic Societies.) The Su- 
perintendent of Insurance, or any person he may appoint, shall 
have the power of visitation and examination into the affairs of 
any domestic society. He may employ assistants for the purpose 
of such examination, and he, or any person he may appoint, 
'shall have free access to all the books, papers and documents that 
'relate to the business of the society and may summon and 
qualify as witness under oath and examine its officers, agents 
and employees or other persons in relation to the affairs, trans- 
actions and condition of the society. 

The expense of such examination shall be paid by the society 
examined, upon statement furnished by the Superintendent of 
Insurance, and the examination shall be made at least once in 
three years. 

Whenever after examination the Superintendent of Insur- 
ance is satisfied that any domestic society has failed to comply 
with any provisions of this Act, or is exceeding its powers, or 
is not carrying out its contracts in good faith, or is transact- 
ing business fraudulently; or whenever any domestic society, 
after the existence of one year or more, shall have a member- 
ship of less than 400 (or shall determine to discontinue busi- 
ness), the Superintendent of Insurance may present the facts 
relating thereto to the Attorney General, who shall, if he deem 
the circumstances warrant, commerce an action in quo warran- 
to in a court of competent jurisdiction, and such court shall 
thereupon notify the officers of such society of a hearing, and 
if it shall then appear that such society should be closed, said 
society shall be enjoined from carrying on any further business 
and some person shall be appointed receiver of such society, 
and shall proceed at once to take possession of the books, 
papers, moneys and other assets of the society and shall forth- 
with, under the direction of the Court, proceed to close the 
affairs of the society and to distribute its funds to those en- 
titled thereto. 



152 FRATERNAL INSURANCE 

No such proceedings shall be commenced by the Attorney 
General against any such society until after notice has been 
duly served on the chief executive officers of the society and 
a reasonable opportunity given to it, on a date to be named 
in said notice, to show cause why such proceedings should not 
be commenced. 

Section 25. (Application for Receiver, etc.) No application 
for injunction against or proceedings for the dissolution of or 
the appointment of a receiver for any such domestic society 
or branch thereof shall be entertained by any Court in this 
State unless the same is made by the Attorney General. 

Section 26. (Examination of Foreign Societies.) The Su- 
perintendent of Insurance, or any person whom he may ap- 
point, may examine any foreign society transacting or apply- 
ing for admission to transact business in this State. The said 
Superintendent may employ assistants, and he, or any person 
he may appoint, shall have free access to all the books, papers 
and documents that relate to the business of the society, and 
may summon and qualify as witness under oath and examine 
its officers, agents and employees and other persons in relation 
to the affairs, transactions and conditions of the society. He 
may, in his discretion, accept in lieu of such examination the 
examination of the Insurance Department of the State, terri- 
tory, district, province or country where such society is or- 
ganized. The actual expenses of examiners making any such 
examination shall be paid by the society upon statement fur- 
nished by the Superintendent of Insurance. 

If any such society or its officers refuse to submit to such 
examination or to comply with the provisions of the section 
relative thereto, the authority of such society to write new 
business in this State shall be suspended or license refused until 
satisfactory evidence is furnished the Superintendent relating 
to the condition and affairs of the society, and during such sus- 
pension the society shall not write new business in this State. 

Section 27. (No Adverse Publications.) Pending, during 
or after an examination or investigation of any such society, 
either domestic or foreign, the Superintendent of Insurance 
shall make public no financial statement, report or finding, 
nor shall he permit to become public any financial statement,. 



NEW YORK CONFERENCE BILL 153 

report or finding affecting the status, standing or rights of any 
such society, until a copy thereof shall have been served upon 
such society, at its home office, nor until such society shall have 
been afforded a reasonable opportunity to answer any such 
financial statement, report or finding, and to make such show- 
ing in connection therewith as it may desire. 

Section 28. (Revocation of License.) When the Superin- 
tendent of Insurance on investigation is satisfied that any for- 
eign society transacting business under this Act has exceeded 
its powers, or has failed to comply with any provisions of this 
Act, or is conducting business fraudulently, or is not carrying 
out its contracts in good faith, he shall notify the society of his 
findings, and state in writing the grounds of his dissatisfaction, 
and after reasonable notice require said society, on a date 
named, to show cause why its license should not be revoked. 
If on the date named in said notice such objections have not 
been removed to the satisfaction of the said Superintendent, 
or the society does not present good and sufficient reasons why 
its authority to transact business in this State should not at 
that time be revoked, he may revoke the authority of the society 
to continue business in this State. All decisions and find- 
ings of the Superintendent made under the provisions of this 
Section may be reviewed by proper proceedings in any court 
of competent jurisdiction, as provided in Section 16 of this 
act. 

Section 29. (Exemption of Certain Societies.) Nothing con- 
tained in this Act shall be construed to affect or apply to grand 
or subordinate lodges of Masons, Odd Fellows or Knights of 
Pythias (exclusive of the Insurance Department of the Su- 
preme Lodge Knights of Pythias), and the Junior Order of 
United American Mechanics (exclusive of the Beneficiary De- 
gree or insurance branch of the National Council Junior Order 
United American Mechanics), or societies which limit their 
membership to any one hazardous occupation, nor to similar 
societies which do not issue insurance certificates, nor to an 
association of local lodges of a society now doing business 
in this State which provides death benefits not exceeding five 
hundred dollars to any one person, or disability benefits not 
exceeding three hundred dollars in any one year to any one 



154 FRATERNAL INSURANCE 

person, or both, nor to any contracts of reinsurance business on 
such plan in this State, nor to domestic societies which limit 
their membership to the employees of a particular city or town, 
designated firm, business house or corporation, nor to domes- 
tic lodges, orders or associations of a purely religious, char- 
itable and benevolent description, which do not provide for 
a death benefit of more than one hundred dollars, or for dis- 
ability benefits of more than one hundred and fifty dollars to 
any one person in any one year. The Superintendent of In- 
surance may require from any society such information as will 
| enable him to determine whether such society is exempt from 
'the provisions of this Act. 

Any fraternal benefit society, heretofore organized and in- 
corporated and operating within the definition set forth in 
Section 1, 2, and 3, of this Act, providing for benefits in case 
of death or disability resulting solely from accidents, but 
which does not obligate itself to pay death or sick benefits, 
may be licensed under the provisions of this Act, and shall 
have all the privileges and shall be subject to all the pro- 
visions and regulations of this Act, except that the provisions 
of this Act requiring medical examinations, valuations of bene- 
fit certificates, and that the certificate shall specify the amount 
of benefits, shall not apply to such society. 

Section 30. (Taxation.) Every fraternal benefit society 
organized or licensed under this Act is hereby declared to be 
a charitable and benevolent institution, and all of its funds 
shall be exempt from all and every state, county, district, 
municipal and school tax, other than taxes on real estate and 
office equipment. 

Section 31. (Penalties.) Any person, officer, member or 
examining physician of any society authorized to do business 
under this Act who shall knowingly or wilfully make any false 
or fraudulent statement or representation in or with reference 
to any application for membership, or for the purpose of ob- 
taining money from or benefit in any society transacting busi- 
ness under this Act, shall be guilty of a misdemeanor, and upon 
conviction thereof shall be punished by a fine of not less than 
one hundred dollars nor more than five hundred dollars, or 
imprisonment in the county jail for not less than thirty days 



NEW YORK CONFERENCE BILL 155 

nor more than one year, or both, in the discretion of the Court ; 
and any person who shall wilfully make a false statement of 
any material fact or thing in a sworn statement as to the death 
or disability of a certificate holder in any such society for the 
purpose of procuring payment of a benefit named in the certifi- 
cate of such holder, and any person who shall wilfully make 
any false statement in any verified report or declaration under 
oath required or authorized by this Act, shall be guilty of per- 
jury, and shall be proceeded against and punished as provided 
by the statutes of, this State in relation to the crime of prejury. 

Any person who shall solicit membership for, or in any 
manner assist in procuring membership in any Fraternal Bene- 
fit Society not licensed to do business in this State, or who 
shall solicit membership for, or in any manner assist in pro- 
curing membership in any such society not authorized as here- 
in provided, to do business as herein defined in this State, 
shall be guilty of a misdemeanor and upon conviction thereof 
shall be punished by a fine of not less than fifty nor more 
than two hundred dollars. 

Any society, or any officer, agent or employee thereof neg- 
lecting or refusing to comply with, or violating any of the 
provisions of this Act, the penalty for which neglect, refusal 
or violation is not specified in this section, shall be fined not 
exceeding two hundred dollars upon conviction thereof. 

Section 32. All acts and parts of acts inconsistent with this 
act are hereby repealed. 



CHAPTER IX 

ANALYSIS OF THE NEW YORK CONFERENCE. 

LAW 

The important elements of the New York Conference 
Bill should be understood by all fraternal workers. If 
the purposes of those who compiled it were appreciated 
there would be less misunderstanding and opposition 
among those who are affected by its requirements. The 
fraternal system would have made greater progress dur- 
ing the period of readjustment if the members of all 
societies had appreciated the importance of underlying 
principles of safe protection which made the adoption 
of such a law necessary. If this knowledge had been 
more generally diffused among legislators, State officers 
and judges of our courts the advance to solvency would 
have been easier; the accomplishment of enduring oper- 
ation would have come quicker. Sometimes ignorance 
is all that prevents a good measure from becoming effec- 
tive. A better understanding strengthens it. 

Since this measure has practically become the law of 
the land it is more appropriate to refer to it as the New 
York Conference Law. The model form is composed of 
thirty-two sections and three sub-sections. Looking at 
its divisions in a broader sense it can be subdivided into 
five parts, as follows : ( 1 ) Definition of fraternal benefit 
societies; (2) regulation and examination by the State 
insurance department and the procedure outlined for 
liquidation if necessary; (3) valuation, and the require- 
ments to be maintained; (4) attainment of solvency 
through classification of members and segregation of 

156 



ANALYSIS OF THE LAW 157 

funds; (5) exemptions from State insurance laws, and 
further exemptions for certain social fraternities and 
those insuring only for funeral benefits from the provi- 
sion applying to benefit societies. These phases of the 
law will be recognized in our analysis. 

Definition. The law begins with the fair and sound 
presumption that because fraternal benefit societies were 
organized and are carried on solely for the mutual bene- 
fit of their members and beneficiaries, and not for profit, 
they are entitled to separate treatment in the law, even 
though they pay insurance benefits. Therefore these 
features are considered necessary distinctions to maintain 
their status and are included in a definition (Section 1), 
which also states that they shall be without capital stock, 
that they shall have a lodge system with ritualistic form 
of work and representative form of government, and that 
the payment of benefits shall be under certain limitations 
and rules. Such a definition is necessary to distinguish 
the societies from commercial life insurance companies, 
as well as to prevent organizations which are not really 
fraternal benefit societies from masquerading as such and 
taking advantage of the favorable provisions and exemp- 
tions of the law. In the early history of fraternal oper- 
ation the legitimate societies discovered that fraudulent 
and speculative enterprises were posing as fraternal socie- 
ties. Their activities brought reproach upon the real 
fraternities. It became necessary, therefore, for the legi- 
timate societies to seek the protection of the law, and this 
resulted in the enactment of a legal definition. 

Moreover, the lodge system needed protection against 
those who imitated it without adopting the essential fra- 
ternal and ritualistic features which distinguish a real 
fraternity. In defining the lodge system (Section 2), 



158 FRATERNAL INSURANCE 

the law says that a society shall have a supreme govern- 
ing or legislative body and subordinate lodges. Members 
shall be elected, initiated and admitted in accordance with 
the laws and prescribed ritualistic ceremonies. Subordi- 
nate lodges shall be required by the society to hold meet- 
ings at least once a month. 

One of the chief factors of strength of the fraternal 
system is that the societies are controlled by a represen- 
tative form of government. This means that the mem- 
bers control the management in every particular through 
their elected representatives. It also means that the offi- 
cers are responsible to the members for the faithful dis- 
charge of their duties, that the members regulate the 
form of benefits which shall be paid, the collection of as- 
sessments and the salaries, and that this feature is self- 
determination in its purest form. This factor is in the 
main responsible for the fact that fraternal societies have 
conducted their business economically and have been free 
from most of the scandals which have afflicted commer- 
cial companies. The law deems that a society has a rep- 
resentative form of government when it provides for a 
supreme legislative or governing body composed of rep- 
resentatives elected by the members, or by delegates 
elected by the members (Section 3). It provides further 
that meetings of the supreme governing body and the 
election of officers and representatives shall be held as 
often as once in four years. No votes shall be by proxy. 

Exemption. Although fraternal benefit societies are 
entitled to issue certificates of insurance to their mem- 
bers the fact that they are conducted for the mutual ben- 
efit of their members without profit entitles them to 
special consideration by the law. Therefore, they are 
exempted (Section 4) from' all provisions of the insur- 
ance laws of the State. 



ANALYSIS OF THE LAW 159 

Benefits. The benefits which a society may pay to 
its members and their beneficiaries are based on the sole 
idea of protection. Societies are not allowed to enter 
the business of investment or of issuing certificates with 
speculative features because they would thereby lose 
their mutual and non-profit taking character. The in- 
vestment business should be left to savings banks and 
bond brokers, and the issuing of tontines or other fea- 
tures of chance should be done, when permitted by law, 
by the various semi-lottery companies in the business for 
profit. One of the chief principles of fraternity is pro- 
tection. All certificates issued by societies should be 
only for protection. This is the attitude of the law in 
scheduling the benefits which fraternal benefit societies 
may pay (Section 5). 

The New York Conference Law says that every socie- 
ty transacting business under the Act shall provide for 
the payment of death benefits. In addition, they may 
pay benefits for temporary or permanent physical disa- 
bility, either as the result of disease, accident or old age, 
but old-age benefits shall not begin until the member 
becomes seventy years old. They may also erect monu- 
ments or tombstones to the memory of deceased mem- 
bers, and they may also pay funeral benefits. These are 
the specified benefits, and they are grounded on the prin- 
ciple of protection. The Law goes further to state in 
listing 'such benefits that nothing in the Act shall be so 
construed as to prevent the issuing of benefit certificates 
for a term of years. Such protection is term insurance, 
in which benefits would be payable only if the member 
died or suffered disability within the term for which the 
certificate was issued. 

All of the above benefits are of such character that 



160 FRATERNAL INSURANCE 

neither the member nor the beneficiary can withdraw any 
of the contributions unless death or disability occur. This 
inherent character is maintained on the idea that protec- 
tion should come first. And so it should. Man's first 
duty is to protect his dependents against poverty and 
his income against loss from accident, sickness or other 
incapacity. All members contribute according to the ex- 
tent of the benefits they expect to draw and the contri- 
butions are used solely to meet death and disability claims 
after a small percentage is consumed in the cost of man- 
agement. 

Liens on Certificates. The benefit section of the 
Act (Section 5) contains a provision which gives a socie- 
ty power to reduce the amount of the benefit promised as 
a result of readjustment of rates, but only upon written 
application of the member. Such reductions become liens 
on the certificates. After a society has operated on in- 
adequate rates so long that the deficiencies in reserve be- 
comes alarming, or it is confronted with the necessity of 
raising more money to meet the monthly disbursements 
to beneficiaries, it must rerate its members or go out of 
business. In such readjustments it becomes necessary 
to charge the deficiencies in reserves of old members 
against their certificates, and this can be wiped out by 
each member paying a higher rate. Sometimes the 
deficiency is so large, through having grown during a 
long period of years, that the new rate becomes exorbi- 
tant. Therefore the society is given the power to accept 
not less than one-half of the periodical contribution or 
rate payment in cash, and the remainder may be charged 
as a lien against the certificate with interest payable or 
compounded annually at not less than four per cent. If 
such liens are not reduced or paid up in the life time of 



ANALYSIS OF THE LAW 161 

the member they are deducted from the benefit payments. 
This privilege is extended only to societies readjusting 
and covering only the contracts affected by such read- 
justments. It gives the member an opportunity, rather 
than lose all of his protection by reason of a higher rate 
than he can afford, to take the easier course of paying a 
lesser contribution in cash and borrowing not more than 
one-half such rate payments from the benefit payable 
later on. 

This provision in practice has caused many disappoint- 
ments to the beneficiaries of old members and has result- 
ed in severe criticism of the fraternal plan of protection. 
But it was the lesser of two evils. It was the outgrowth 
of the big mistake in early operation, the mistake that 
was couched in the impossible plan of attempting to carry 
whole-life protection on a current mortality income. The 
whole scientific basis of whole-life protection is summed 
up in the fact that level premiums must be adequate to 
accumulate the proper reserves to meet rising mortality 
of later years. Mortality plays no favorites. Its immu- 
table law is that men must die; and any society which 
starts on the current cost plan with the idea that rates 
will not increase when the members grow old is sure to 
suffer the penalties of this law. The longer the accumu- 
lation of a reserve is delayed, or the increase of rates is 
postponed, the harder will be the penalty. This is what 
the old members suffered. Their contributions in 'early 
years were not sufficient to build a reserve, the increase 
in contributions was delayed, and the result was that 
in old age they had to make good in what they had failed 
to do before. The delay made this penalty greater and 
almost overwhelming. The provision of this law per- 
mitting them to pay a portion of their rates in liens 
softened the penalty, even though it was unpopular. 



162 FRATERNAL INSURANCE 

Extended and Paid-Up Protection. In the evolu- 
tion of the protective feature of fraternal societies which 
brought them to recognize the necessity of reserve ac- 
cumulations to maintain level rates they were, by reason 
of the adoption of the sounder plan, permitted to give 
their members a wider latitude in selecting forms of cer- 
tificates. These include extended and paid-up protection 
and withdrawal equities. If a member contributes funds 
sufficient to create a reserve he thereby establishes a cred- 
it to his certificate. This credit is expected, by deter- 
mination through actuarial computation, to equal the face 
of the certificate when his death is expected. 

The principle underlying extended and paid-up protec- 
tion is that this credit belongs to the member, or his bene- 
ficiary, and that one or the other should receive it. If a 
member stops paying assessments, the extended insur- 
ance clause provides that his credit shall be used to buy 
term insurance calculated at his attained age and termi- 
nating when the credit has been exhausted. Or the credit 
can be used to buy a small whole life certificate fully 
paid up. If a member believes that he should pay for 
his protection in the younger and productive years of his 
life, he can increase the size of the contributions, and 
thereby the amount of the accumulations, until the paid- 
up value equals the face value, subject to expected inter- 
est earnings. This provides limited-payment whole-life 
protection, and its most popular form is twenty-payment 
life. The principle is the same whether the contributions 
continue throughout life or are limited to a term of years, 
the only difference being in the amount of the accumula- 
tions. 

Such paid-up and extended protection may be granted 
by fraternal benefit societies, according to the New York 



ANALYSIS OF THE LAW 163 

Conference Law (Subsection 2 of Section 5), if the an- 
nual valuation shows that the society is accumulating and 
maintaining the usual reserve computed by the American 
Experience Table and four per cent. It may also give 
withdrawal equities. However, such grants shall in no 
case exceed the reserve to the credit of such members. 

Beneficiaries. Fraternal societies have always scru- 
tinized closely the purposes for which their members are 
applying for insurance. It is not their office to supply 
credit for business deals, to provide money for the pay- 
ment of a member's debts, or to do a banking business. 
Their ideal is to protect the persons dependent upon the 
member for support or in whom the member has a close 
interest due to relationship. Therefore the persons who 
may become beneficiaries under a fraternal certificate are 
restricted to certain degrees of relationship (Section 6). 
The payment of death benefits shall be confined to wife, 
husband, relative by blood to the fourth degree, father- 
in-law, mother-in-law, son-in-law, daughter-in-law, step- 
father, stepmother, stepchildren, children by legal adop- 
tion, or to a person or persons dependent upon the 
member. The only case in which a fraternal certificate 
can be assigned is after the issuance of the original cer- 
tificate and when the member shall become dependent 
upon an incorporated charitable institution. In such 
case he may have the privilege with the consent of the 
society to make such institution his beneficiary. These 
are the extreme limits, and within them the member shall 
have the right to designate his beneficiary, and he may 
change them according to the laws of the society. The 
Law permits any society to restrict the beneficiaries fur- 
ther if it so desires. No beneficiary shall obtain any 
vested interest in the benefit until it becomes due and 
payable upon the death of the member. 



164 FRATERNAL INSURANCE 

Who May Become Members. The qualifications 
for membership may be fixed according to any standard 
of social, racial, religious or occupational restriction which 
the members may favor, but the New York Conference 
Law requires that benefit certificates may be issued only 
to persons who are not less than sixteen and not more 
than sixty years of age and who have passed a competent 
physical examination by a legally qualified physician 
(Section 7). However, any beneficiary member who 
may apply for a certificate providing disability benefits 
need not pass an additional medical examination. 

Benefit Certificate. An important fact in connec- 
tion with the benefit certificate is that the members of 
the society, by reason of the mutuality of their organi- 
zation, stand in the relation of being their own insurers, 
as well as being the insured. Since the members com- 
pose the society, they must stand or fall with the organi- 
zation. The certificate is not a contract into which the 
society enters as the insurer on one side and the members 
as the insured on the other. A fraternal benefit society 
is a mutual co-operative organization in which the mem- 
bers band together to insure one another. This factor 
distinguishes it from an old-line insurance policy, in 
which the company contracts to perform a specific act, 
viz., the payment of insurance, in consideration of the 
insured paying the premiums. 

For this reason the Law provides (Section 8) that 
every certificate issued by any such society shall specify 
that the agreement shall consist of the certificate, the 
charter or articles of incorporation, or articles of asso- 
ciation, the constitution and laws of the society, and the 
application for membership and the medical examination, 
and all amendments to each. In addition, any changes, 



ANALYSIS OF THE LAW 165 

additions or amendments to the charter or articles of in- 
corporation, constitution or laws duly made or enacted 
subsequent to the issuance of the benefit certificate shall 
bind the member and his beneficiaries, and shall govern 
and control the agreement in all respects the same as 
though they had been made prior to and were in force 
at the time of the application for membership. 

We see by the above that mutuality imposes its respon- 
sibilities upon the member at the same time it confers, 
its benefits. The members govern their organization in 
every respect, and it is only just and right that they should 
be subject to the laws, rules and regulations which they 
create. This principle has been emphasized in decisions 
of our courts of law. Members have sued their societies 
on the ground that the certificate was a contract entered 
into on the same basis as with a stranger and therefore 
the society was obligated to act as specified in the original 
agreement without regard to subsequent amendments to 
its laws. But the courts have held that subsequent 
changes are binding. 

Adequate Reserve Fund. The New York Confer- 
ence LaW makes a distinction between societies which are 
already incorporated in the State, or already admitted, 
and those which may be incorporated or admitted after 
the law went into effect in regard to the maintenance of 
an adequate reserve fund. It says (Section 9) that any 
society may create, maintain, invest, disburse and apply 
an emergency, surplus or similar fund in accordance with 
its laws. Of course such laws must conform to the laws 
of the State. Such funds shall be held, invested and dis- 
bursed for the use and benefit of the society, and no 
member or beneficiary shall have or acquire individual 
rights therein or become entitled to any surrender or ap- 



166 FRATERNAL INSURANCE 

portionment of any part thereof, except as provided in 
Subsection 2 of Section 5, already explained, which gives 
the society the right to grant extended and paid-up pro- 
tection and withdrawal equities on the American Ex- 
perience Table of Mortality. 

The distinction mentioned between the two classes of 
societies is one which requires that after the passage of 
the law no society shall thereafter be incorporated which 
does not provide for rates adequate to meet the mortuary 
obligations contracted when valued upon the basis of the 
National Fraternal Congress Table of Mortality, or any 
higher standard with interest assumption not more than 
four per cent, per annum. In other words, a new society 
must collect N. F. C. or higher rates from the beginning. 
And outside societies seeking admission to do business 
in the State must meet the valuation requirements of Sec- 
tion 23a of the New York Conference Bill before they 
will be admitted, which works out practically the same as 
the requirement for new societies. In addition, the Law 
prescribes practically the same rules for new societies 
or those seeking admission to write members for total 
disability benefits. No requirements for adequate rates 
are made in Section 9 for societies already incorporated 
or admitted, but provisions to insure future security and 
plans for attaining actuarial solvency are incorporated 
in Sections 23a and 23b. 

Deferred Payment of Benefits. When a society 
undertakes to pay benefits in installments the Law re- 
gards (Subsection 2 of Section 9) such payments as fixed 
liabilities on the happening of the contingency upon which 
such payments are thereafter to be made. This refers 
especially to monthly income insurance for beneficiaries 
and old-age or permanent disability payments to the 



ANALYSIS OF THE LAW 167 

members. Upon the death, disability or attainment of 
the proper old-age, a certain sum becomes a fixed liabil- 
ity. Such a sum must be sufficient to guarantee that all 
the installments will be paid in full, and it is computed 
at the present value upon the rate of interest and mor- 
tality assumed by the society for valuation. By follow- 
ing this provision of the Law the society sets aside a cer- 
tain sum which, with the addition of the interest factor 
or mortality, or both, depending whether the payments 
are for beneficiaries or old-age or permanent disability 
benefits, will equal the total claim. It is maintained as a 
segregated fund and cannot be touched for other pur- 
poses, whether for expense or mortuary payments. 

Investments. The New York Conference Law pro- 
vides that the same regulations in force for the invest- 
ment of funds by life insurance companies shall apply to 
fraternal benefit societies, but a society incorporated in 
any other State, which invests its funds in accordance 
with the laws of that State, shall be held to meet the re- 
quirements of the Act (Section 10). 

Safeguard for the Benefit Fund. The funds which 
fraternal benefit societies collect and hold for mortuary 
and disability purposes are hedged about with careful re- 
strictions. This law requires that every provision of the 
laws of the society regarding contributions of the mem- 
bers shall state distinctly the purposes of the same and 
the proportion which may be used for expenses. Thus, 
when a member pays an assessment he is assured that 
the portion which is for benefits will be used solely for 
that purpose. The portion which is for expenses is all 
that the society can use for expense purposes. The law 
says further (Section 11) that no part of the money col- 
lected for mortuary or disability purposes, or the interest 



168 FRATERNAL INSURANCE 

accretions earned by the fund, shall be used for expen- 
ses. 

Method of Organizing a Society. The require- 
ments of the Law to which the organizer of a new socie- 
ty must conform are based upon the constructive purpose 
of the Act to have all societies on a sound and enduring 
foundation. A new society must adopt all of the bene- 
ficial factors of operation which many of the old societies 
can only hope to attain through readjustment. A new 
society must collect adequate rates from the start, it 
must complete its permanent organization within a year, 
and it must follow a specified procedure and submit to 
thorough examination by the State insurance depart- 
ment. These provisions of the law are not for the pur- 
pose of discouraging the founding of new societies. They 
simply prevent fraud against those who apply for mem- 
bership and pay assessments to the organizers. The chief 
effect of such provisions is to make the organizers sure 
that they want to carry through their plans. 

Seven or more citizens of the United States, a major- 
ity of whom are also citizens of the State, may incorpo- 
rate a fraternal benefit society by making, signing and 
acknowledging the articles of incorporation before some 
officer competent to take acknowledgment of deeds ( Sec- 
tion 12). In the articles of incorporation shall be stated 
the proposed name of the society, the purpose for which 
it is formed, the mode in which its corporate powers are 
to be exercised, and the names, residences and official 
titles of all the officers, trustees, directors or other per- 
sons who are to control and manage the affairs and funds 
for the first year or until the ensuing election. This elec- 
tion shall be held not later than one year from the date 
of the issuance of the permanent certificate, and it shall 
be held by the supreme legislative or governing body. 



ANALYSIS OF THE LAW 169 

The State insurance department is given supervision 
from the beginning over the organizing of a new society. 
The articles of incorporation and duly certified copies 
of the constitution and laws, rules and regulations, and 
all proposed forms of benefit certificates, applications 
and circulars, and a bond in the sum of five thousand 
dollars must be filed with the superintendent of insur- 
ance. And he may require such other information as he 
deems necessary. If the purposes of the society conform 
to the requirements of the Act, and all provisions of the 
law have been complied with, the superintendent shall 
furnish the incorporators a preliminary certificate auth- 
orizing the society to solicit members. 

In completing its membership the society must collect 
at least one monthly payment from at least five hundred 
applicants for at least one thousand dollars of insurance 
each, and a medical examination of each applicant must 
be approved by the chief medical examiner ; it must estab- 
lish ten subordinate lodges into which the applicants must 
be initiated; it must collect at least twenty-five hundred 
dollars from the five hundred or more applicants, all of 
such amount to be credited to the mortuary or disability 
fund on the account of such applicants, and no part of 
which may be used for expenses ; and the president and 
secretary must furnish under oath to the superintendent 
of insurance a list of such applicants with essential facts 
regarding their admission, amount of benefits to be grant- 
ed, and the rate of stated periodical contributions, which 
shall be based on the National Fraternal Congress Table 
of Mortality, or any higher table. Upon presentation of 
this and other satisfactory evidence that the society has 
complied with all the provisions of the law to the super- 
intendent of insurance he shall issue a certificate that 



170 FRATERNAL INSURANCE 

such a society exists and is entitled to operate. During 
this period the advanced payments of the applicants are 
held in trust, and if the organization is not completed 
within one year, they are to be returned to the applicants. 
During this period also the society is under no liability 
to the 'members exceeding the advanced payments. 

The author desires to emphasize here that although 
the superintendent of insurance is given power by the 
New York Conference Law to require complete and sat- 
isfactory assurance that all provisions of the Act are 
complied with, and he may make further examinations 
to satisfy himself on this point, he may not dictate to 
the society what it shall or shall not do. He is not per- 
mitted to govern the operations, legislation or administra- 
tion of a society. The society itself, through the consti- 
tution and by-laws it has itself made according to law, 
prescribes the government of the organization, the ad- 
mission of its members, the management of its affairs 
and the fixing and readjusting of its rates; and it shall 
have the power to change, alter, add to or amend its con- 
stitution and by-laws, and it shall have such other powers 
as are necessary and incidental to carrying into effect the 
objects and purposes of the society. 

Powers Retained by Established Societies. Socie- 
ties transacting business in the State at the time of the 
adoption of the New York Conference Bill are not 
disturbed in the rights, powers and privileges not in- 
consistent with the Act exercised or possessed under 
their charters or articles of incorporation. No society 
already organized shall be required to reincorporate. 
But amendments may be made to articles of incorpora- 
tion, and these shall be filed with the superintendent of 
insurance. (Section 13.) 



ANALYSIS OF THE LAW 171 

Mergers. Societies may merge or transfer their 
memberships under certain rules and a specified proce- 
dure. Such mergers or transfers must be evidenced by 
a contract in writing, setting out in full the terms and 
conditions, and this must be filed with the superintendent 
of insurance. The merger must be approved by a vote 
of two- thirds of the members of the supreme legislative 
or governing body of each society. This must be attested 
by the officers in a certificate filed with the State depart- 
ment, as well as a sworn statement of financial condition 
of each society. If the superintendent finds all of these 
to be in conformity with the law, and that the merger or 
transfer is just and equitable to the members of each 
society, he shall approve the contract and issue a certifi- 
cate to that effect. (Section 14.) 

Licenses. A license to operate is given each society 
upon the payment of a fee, and this license must be re- 
newed on the first day of April of each year. (Section 
15.) 

Admission of Foreign Societies. A foreign society 
is one incorporated and having its home office in another 
State, Province or Country. It may secure a license to 
operate in a State under the New York Conference Bill 
t>y filing with the superintendent of insurance the proper 
documents, which include copies of essential articles, 
laws and regulations, statements of finances and member- 
ship, and a certificate from the superintendent of the 
home State (Section 16). The license is renewable on 
the first day of April of each year. 

Foreign societies shall have the qualifications required 
of domestic societies organized under the Act, which are 
determined by valuation, and their assets shall be invest- 
ed according to the laws of the home State. This means 



172 FRATERNAL INSURANCE 

that a society incorporated in a State which does not re- 
quire valuation and the standards for actuarial solvency 
must, if it desires to operate in States having the New 
York Conference Bill, conform to the provisions of the 
Bill. 

A fee is required for the license or a renewal. While 
it terminates on the first day of April and must be re- 
newed annually, it continues in full force and effect until 
a new license is issued or specifically refused. A revo- 
cation of license or refusal to renew by the superintend- 
ent must be reduced to writing, and he shall furnish a 
copy of the same with a statement of his reason to the 
officers of the society, and this action is reviewable by 
proper proceedings in any court of competent jurisdic- 
tion in the State. Should a license be refused or revoked 
the Law gives the society the right to continue in good 
faith all contracts made in the State when it was legally 
authorized to transact business therein. 

Service of Process Upon Societies. All societies,, 
domestic and foreign, are required to appoint the super- 
intendent of insurance the attorney upon which all legal 
process in actions or proceedings against them shall be 
served in duplicate. When served with such process he 
shall forthwith forward one of the copies by registered 
mail to the secretary or corresponding officer. (Section 
17.) 

Meeting Place of Supreme Lodge. The supreme 
governing body of a domestic society may hold its meet- 
ings in any State, district, province or territory where it 
has subordinate lodges (Section 18). All business trans- 
acted at such meetings shall be as valid as if they were 
held in the State in which the society is incorporated. 
But the principal office of a domestic society shall be 
located in the State in which it is incorporated. 



ANALYSIS OF THE LAW 173 

Officers Not Personally Liable for Benefits. Death 
and disability benefits are payable only out of the funds 
of the society and in the manner provided by its laws 
(Section 19). Officers and members of the supreme, 
grand or subordinate body of any society shall not be 
individually liable for the payment of such benefits. 

Laws Cannot Be Waived. No subordinate lodge 
and no subordinate officer or member shall have the pow- 
er or authority to waive any of the provisions of the 
constitution and laws of the society, if the society's laws 
so provide. (Section 20.) 

Benefits Not Attachable. All benefits paid by a fra- 
ternal society are inviolate against legal seizure (Sec- 
tion 21), to pay any debt or liability of a member or ben- 
eficiary. This applies most often in the case of a member 
dying insolvent; the benefits payable to his beneficiaries 
cannot be seized to pay the member's debts. 

Filing of Amendments. All amendments of or ad- 
ditions to the constitution and by-laws of a society must 
be filed with the superintendent of insurance within nine- 
ty days of the enactment of the same (Section 22). 

Annual Reports. An annual report must be made 
to the superintendent of insurance by every society trans- 
acting business in the State on or before the first day of 
March. This report shall show its condition and stand- 
ing on the preceding thirty-first day of December, and 
of its transactions for the year ending on that date (Sec- 
tion 23). Such reports are now practically uniform in all 
States. The blanks are prepared by a committee of the 
National Convention of Insurance Commissioners, and 
the purpose is not only to secure uniformity in reporting, 
but to hasten the day when operation of fraternal benefit 
societies shall be uniform throughout the United States. 



174 FRATERNAL INSURANCE 

Valuation. This subject, because of the fact that 
fraternal benefit societies have been required to make 
progress towards solvency and future security upon the 
showings of valuation, has been the cause of intense dis- 
cussion in fraternal circles of the United States and Can- 
ada. It has been misunderstood, and the principle of 
valuation has been condemned by many who would have 
profited by a knowledge of its purposes. A simple ex- 
planation of valuation will show its necessity in scien- 
tific operation. 

Valuation is simply a stock-taking of resources and 
promises. A valuation exhibit is a balance sheet of such 
items. There are several methods of valuation, but a 
simple one, and the kind that is equitable and most used 
in fraternal operation, is as follows : On the one side are 
assets, actual and contingent. The actual assets consist 
of cash and investments money which is available for 
paying claims; the contingent assets are the expected 
contributions of the members, figured according to the 
rates and expectancy of life of the members based on a 
reliable table of mortality. On the other side are the 
liabilities, actual and contingent. The actual liabilities 
consist of claims for benefits on deaths which have al- 
ready occurred and all other monies due and unpaid ; the 
contingent liabilities are the benefits promised to the mem- 
bers. The degree of solvency is the ratio of all such as- 
sets to all liabilities. This percentage tells whether the 
society, with its assets on hand and the expected con- 
tributions, will receive and will have enough money to 
pay death claims as they mature. If these items equal 
each other the ratio of actuarial solvency is 100 per cent. 
If it falls below 100 per cent., it is incumbent upon a 
society which intends to pay its claims in full to arrange 



ANALYSIS OF THE LAW 175 

to collect more money from the members. There are 
several methods of valuation, but all of them are for the 
one purpose, viz., discovering whether the organization 
can pay its claims. 

Valuation has been in use by old-line life insurance 
companies from the beginning. Their premium rates are 
based upon the expectancy of paying the promised in- 
surance in full when the policies mature. This has given 
such companies a solid financial foundation. Since they 
issue fixed-price contracts upon which the rates cannot 
be increased, it is necessary that the officers and policy- 
holders and State insurance departments shall be assured 
that their accumulations are sufficient to meet the terms 
of the contracts. With valuation, the companies are en- 
abled to show whether they can meet such obligations. 
Without valuation, nobody could learn this vital fact, 
and the companies could charge any premium rate, large 
or small; they could pursue a straight course towards 
bankruptcy; and nobody would be the wiser until the 
crash came. Without valuation, the companies could 
pursue a course of virtual swindling without the con- 
sciousness of guilt. 

| The sentiment for valuation of fraternal benefit socie- 
ties came as a result of the failure of several early socie- 
ties to live up to their promises. Although their con- 
tracts were not actual promises of a fixed benefit, but 
agreements among the members for mutual relief, the 
members made the mistake of considering their certifi- 
cates in the same light as policy contracts of the insur- 
ance companies. The trouble with the early fraternal 
certificates was that they were on a current cost basis; 
they accumulated no reserve; and when rising mortality 
demanded increased contributions the members were un- 



176 FRATERNAL INSURANCE 

able to pay them. This caused a demand for level rates. 
The essential basis of level rates is the accumulation of 
a reserve. Thereupon many of the societies began to 
lay aside reserves, but far-seeing leaders questioned the 
adequacy of such accumulations. Their purpose was to 
prevent a recurrence, through insufficient reserves, of 
the disappointments which had resulted because of no 
reserves. Therefore, valuation was the only method 
available by which the officers and members could be 
'informed as to the adequacy of contributions and reserves 
to maintain a level rate. 

The great campaign of education which began imme- 
diately after the adoption of the National Fraternal Con- 
gress Table of Mortality in 1899 was to impress upon the 
members of fraternal societies the necessity of paying 
adequate rates. This campaign had to be extended to the 
members because the societies are governed by the certifi- 
cate holders and upon the memberships rested the bur- 
den of making final decisions. The arguments were for- 
tified by valuation. The result was that a misconception 
of the purposes of valuation was spread throughout the 
country, assisted by the insurgents and obstructionists 
who hoped to ride into office on the resentment of those 
who opposed an increase in rates. The chief misconcep- 
tion was that valuation was an agency to force increases 
of rates. It was immensely unpopular because it exposed 
truths which many of the members did not care to accept. 
The fact is that valuation could only show the real con- 
dition of a society; it could expose the weakness of 
inadequate rates; it could warn, but its powers to force 
increases of rates rested solely upon whether the mem- 
bership had enough sense to correct the weaknesses 
exposed. 



ANALYSIS OF THE LAW 177 

Valuation in the Mobile Bill. A new departure in 
legislation regulating fraternal benefit societies was in- 
troduced in the Mobile Bill which was approved in 1910. 
Its purpose was to require the societies on an actuarily 
insolvent basis to increase their reserve accumulations 
through a designated period of years until they became 
fully 100 per cent, solvent. The ideal of the promoters 
of the Mobile Bill was to make the fraternal system as 
safe and sound as the old-line insurance institution. In 
order to designate which societies needed increases in 
their accumulations, and the amount of such increases 
necessary, the principle of valuation had to be adopted. 
Valuation was the authorized basis upon which the in- 
creases were to be made, as well as a means of publicity 
to inform the members of the real condition of their 
societies. 

The three chief features of the Mobile Bill, therefore, 
were valuation, publicity of valuation exhibits, and pro- 
visions to insure future security. The Bill did not re- 
quire established societies to adopt N. F. C. or any other 
rates, as has been erroneously supposed by many, but it 
made it obligatory upon a society to correct any unsafe 
condition which valuation might disclose. The result of 
making such corrections, however, usually caused the 
adoption of N. F. C. or some other safe table of contri- 
bution rates. The features of valuation and publicity 
were retained when the Mobile Bill was superseded by 
the New York Conference Bill, but the provisions to in- 
sure future security were amended. This amendment 
will be explained in our discussion of Section 23a. 

Valuation in the New York Conference Bill. In ad- 
dition to the annual report, each society shall annually 
report to the superintendent a valuation of its certificates 



178 FRATERNAL INSURANCE 

in force on December 31st, last preceding (Section 23). 
It must be filed within ninety days after the submission 
of the annual report, which means before June 1st of 
each year. The first valuation required was made as of 
December 31, 1912. 

In a survey of a technical provision of the law the 
text must be followed closely in order to prevent misun- 
derstanding. Therefore, the reader is referred to Sec- 
tion 23, and is requested to keep the text before him 
while reading this explanation. The reader should also 
keep in mind the purposes and principles of valuation as 
outlined in preceding paragraphs. 

Of course the valuation shall contain a statement of 
the actual assets and actual liabilities. The law then 
specifies that the contingent assets shall be the present 
mid-year value of the future net contributions. These 
are based on the rates provided in the constitution and 
laws and which are actually to be collected. The con- 
tingent liabilities shall be the present mid-year value of 
promised benefits all of the protection to be paid under 
the certificates in force and subject to valuation. The 
percentage of solvency is determined by the ratio of ac- 
tual and contingent assets to actual and contingent lia- 
bilities. This is called the prospective method of valua- 
tion. 

At the option of the society another method may be 
employed in lieu of the above. This valuation shall show 
the net value of the certificates, and said net value, when 
computed in case of monthly contributions, may be the 
mean of the terminal values for the end of the preceding 
and of the current insurance years. This gives the value 
at the middle of the year. The net value equals the re- 
quired reserve for the year in which the valuation is 



ANALYSIS OF THE LAW 179 

made. Therefore, the present accumulated reserve is 
set off against the net value of the certificates in order 
to determine the solvency of the society. This is called 
net valuation. 

The New York Conference Law says further that the 
valuation shall be certified by a competent accountant or 
actuary. The legal minimum standard of valuation for 
all certificates, except for disability benefits, shall be the 
N. F. C. Table of Mortality, or, at the option of the socie- 
ty, any higher table ; or, at its option, it may use a table 
based upon the society's own experience if it covers at 
least twenty years and not less than one hundred thou- 
sand lives, and the interest assumption shall be not less 
than four per cent, per annum. Further provisions, as 
noted in the law, are made for the valuation of disability, 
benefits. 

The Law is careful to state that such a valuation shall 
not be considered or regarded as a test of the financial 
solvency of the society, but each society shall be held to 
be legally solvent so long as the funds in its possession 
are equal to or in excess of its matured liabilities. This 
is the distinction between commercial and actuarial sol- 
vency. So long as a society's funds are sufficient to pay 
current claims it is deemed to be legally solvent. As 
stated before, valuation is for the purpose of showing 
how the society will fare in the future under the schedule 
of rates used in the valuation. Certainly it must show 
present solvency, or take immediate action to collect extra 
assessments to wipe out the deficit. 

Publicity for Valuation Reports. One of the pro- 
visions of the original Mobile Bill was a requirement 
that the annual valuation reports should be made public 
for the enlightenment and education of the society mem- 



180 FRATERNAL INSURANCE 

bers. This was retained unchanged in the New York 
Conference Bill (Section 23). Beginning with the year 
1914 the valuation report and an explanation of the facts 
concerning the condition of the society thereby disclosed 
are required to be printed and mailed to each beneficiary 
member not later than June 1st. Or the same may be 
printed in the society's official paper and a copy mailed 
to each member. 

Extra Collections to Meet Deficiency. Section 23 
contains a provision which requires the society to carry 
a law providing that if the stated periodical contributions 
of the members are insufficient to pay all matured death 
and disability claims in full, and to provide for the cre- 
ation and maintenance of the funds required by its laws, 
additional, increased or extra rates of contribution shall 
be collected from the members tp meet such deficiency. 
This means that if a society has adopted a plan which 
requires it to create and maintain a reserve fund accord- 
ing to a table of mortality, as well as other funds, and if 
the payment of all death and disability claims in full 
requires so much money that the appropriations to the 
various funds are insufficient to maintain them, the socie- 
ty shall therefore call upon the members for greater con- 
tributions. These shall be in the form of extra or in- 
creased assessments. This provision operates to keep 
the reserves intact when an epidemic or some other cause 
increases the current death claims. 

Liens to Meet Deficiency. A society's laws may 
provide that, upon the written application or consent of 
the member, his certificate may be charged with its pro- 
portion of any deficiency disclosed by valuation, with in- 
terest not exceeding five per cent, per annum (Section 
23). Thus a society may enact a law which will give a 



ANALYSIS OF THE LAW 181 

member the right to carry his deficiency as a lien against 
the certificate rather than pay extra or increased contri- 
butions to insure solvency. 

Provisions to. Insure Future Security. With valu- 
ation as a foundation' to show the condition of a society, 
the New York Conference Law provides further that 
certain requirements shall be met (Section 23a). These 
are determined by the valuation showings of certain 
years. Starting with the premise that the valuation of 
December 31, 1917, shows a society to be less than 100 
per cent, solvent, the Law requires that each succeeding 
triennial valuation shall rshow a condition as good ; the 
society shall maintain such condition there need be no 
increase in the degree of deficiency. 

This provision was more drastic in the original Mobile 
Bill ; the society was required to make an increase of five 
per cent, in its condition at each succeeding triennial val- 
uation. This change was one of the most important 
amendments agreed upon at the New York Conference 
when the Mobile Bill was superseded. 

The principle upon which this requirement is based 
is that as long as the degree of solvency of a society suf- 
fers no decrease, it will never fail. It is probable that. 
the test was fixed at three-year intervals in order that 
temporary fluctuations could not be used to the prejudice: 
of a society. Thus, the influenza epidemic of 1918 made- 
a temporary change in the degree of solvency of some 
societies. They had an opportunity by the end of 1920 
to repair the condition. , 

The provisions of Section 23a do not apply to any 
society with valuation solvency of 100 per cent, or over. 

If the valuation condition of December 31, 1917, of 
any society is not maintained at the end of the year 1920 



182 FRATERNAL INSURANCE 

or 1923, or at any succeeding triennial valuation, the 
superintendent of insurance shall direct that it thereafter 
comply with the requirements specified in the Act. This 
appears to make it the duty of the superintendent to issue 
a warning, or notice. Then, if the next succeeding trien- 
nial valuation after the receipt of such notice shall show 
that the society has failed to maintain the condition re- 
quired, the superintendent may, in the absence of good 
cause shown for such failure, institute proceedings .for 
the dissolution of such society, in accordance with the 
provision of Section 24 of the Act, or in the case of a 
foreign society, its license may be cancelled in the man- 
ner provided in the Act. Proceedings for dissolution, in 
such case, are directed by the attorney-general of the 
State according to prescribed regulations. 

Section 23a requires also that if a society fails to main- 
tain its solvency as prescribed, and shall not make the 
required improvement within two years after a triennial 
valuation, it shall charge N. F. C. rates for new members, 
or higher rates. The earliest date that this provision can 
apply is January 1, 1923. Such new members and the 
funds to their credit shall be segregated. The Law on 
this point deserves careful reading, and is as follows: 
""Any such society, shown by any triennial valuation, sub- 
sequent to December 31, 1917, not to have maintained 
the condition herein required, shall, within two years 
thereafter, make such improvement as to show a percent- 
age of deficiency not greater than as of December 31, 
1917, or thereafter, as to all new members admitted, be 
subject, so far as stated rates of contributions are con- 
cerned, to the provisions of Section 12 of this Act, ap- 
plicable in the organization of new societies (requiring 
N. F. C. or higher rates) ; provided that the net mortuary 



ANALYSIS OF THE LAW 183 

or beneficiary contributions and funds of such new mem- 
bers shall be kept separate and apart from the other funds 
of the society. If such required improvement is not 
shown by the succeeding triennial valuation, then the said 
new members may be placed in a separate class and their 
certificates valued as an independent society in respect 
of contributions and funds." 

Section 23b. At the time the Mobile Bill was 
amended, a new section was added at the request of 
several societies which were not satisfied with the bill 
as it stood. This is Section 23b, which sets up a method 
of valuation and provisions for improvement which socie- 
ties may follow in lieu of Sections 23 and 23a. It estab- 
lishes valuation on the "accumulation basis," which takes 
into consideration any credit old members may have as a 
result of the actual experience of the society. The im- 
portant feature of this section, however, is classification 
of members and segregation of funds according to the 
rates they may be paying. 

A society accepting the provisions of Section 23b in its 
laws, and valuing the certificates of its members on the 
accumulation basis, thereby starts such members with 
their existing credits on an equitable basis of mutual par- 
ticipation in gains or losses of the future. If there is a 
deficit, instead of a credit, at this time, such deficit shall 
not be charged against the member, except as specifically 
provided in the society's laws. After such first valua- 
tion, if any member's share of losses for any year exceeds 
his credit and his contributions for the year, he can be 
required to pay increased or extra assessments. The 
effect of this is to require the members to pay the actual 
current cost of their protection, which, by the law of mor- 
tality, 'is certain to increase as the members grow older 
and die in greater numbers. 



184 ! FRATERNAL INSURANCE 

This is a practical provision for winding up the busi- 
ness of the members who have been paying inadequate 
rates and have accumulated insufficient or no reserves to 
their credit. It requires them to make good the inade- 
quacy of their rates of former years. It operates the 
same as for a society which might stop taking in new 
members and expects existing members to meet the cost 
of insurance as the claims mature. The only difference is 
that Section 23b permits the society to continue opera- 
tion by admitting its new members into a separate class 
and segregating the funds. These funds shall exist sep- 
arately as though they belong to separate societies. Thus 
the use of classification is established. 

The law permits such old members to rerate or trans- 
fer to any plan adopted by the society with net rates on 
which tabular reserves are maintained, and they may ap- 
ply their credits. But they must maintain a full reserve 
on such rerated certificates, an adequate reserve com- 
puted on a recognized mortality table. Such reserves are 
maintained by adequate rates, and they shall be valued 
on the "tabular basis." But if a deficiency is shown in 
the reserve of the certificate under the first valuation, 
then it shall be valued on the accumulation basis. 

As a measure of relief to old members, the society 
may provide, when the total mortuary collections do not 
equal the claims and the amounts to be set aside in the 
reserves, that the deficit may be met by increased con- 
tributions or by an increase in the number of assessments 
applied to the society as a whole, instead of to classes of 
members. Determination of wHich course to pursue is 
left to the society in framing its laws. 

Not only are adequate-rate and inadequate-rate 
classes permitted to be separated by the society's laws, 



ANALYSIS OF THE LAW 185 

but Section 23b allows the society to segregate the assets 
representing the reserves of any separate class of mem- 
bers. Assets for such a class may be carried as if in an 
independent society, and the required reserve accumula- 
tion of such class so set apart shall not thereafter be 
mingled with the assets of other classes of the society. 

Section 23b has been the subject of much discussion. 
Those who criticise it claim that it gives a society the 
power to crowd out the members, those "who have 
borne the heat and burden of the day." They claim that 
the old members built the society and, therefore, should 
receive more charitable consideration. The argument 
on the other side is that the old members, while paying 
inadequate rates, have received their protection on a cur- 
rent cost basis and have no reserves to their credit. If 
they are to receive level-premium insurance, then they 
have obtained it for less than cost. The new members 
will have to pay the deficiency. If the inadequate-rate 
continues, the new members will pay the deficit on the 
current cost of the old members, and they will soon be 
obliged to pay higher rates for their own protection. It 
would result in robbing the new members. 

If new members are to be admitted on adequate rates, 
the society must guarantee that they will remain level. 
This requires the accumulation of the proper reserves. 
The new members should not be robbed of their reserves 
to pay the deficiencies of the old members. It is equitable 
and right that the old members should pay for their pro- 
tection, even if it results in large increases of rates, or 
even of forcing them out. The integrity of the fraternal 
system cannot be destroyed by appropriating the reserves 
belonging to new members to meet the deficiencies of old 
members. Such a course would be the grossest kind of 



186 FRATERNAL INSURANCE 

inequity. The segregation of old members is right, the 
requirement that they pay the true cost of their protec- 
tion is based on justice, and on this principle the frater- 
nal system must stand or fall. 

Examination of Societies. One oithe powers given 
to the superintendent of insurance by the New York 
Conference Bill is that of examining the business affairs 
of fraternal benefit societies. This is not intended to give 
the superintendent authority to pry unduly into a socie- 
ty's business, or of petty interferences in its operation. 
In giving honest and intelligent supervision it is neces- 
sary for the superintendent to avail himself of the right 
kind of information as to what is going on. Examina- 
tion is, accordingly, a factor in supervision. 

The superintendent of insurance, or any person he 
may appoint, shall have the power of visitation and ex- 
amination into the affairs of any domestic society (Sec- 
tion 24). The examiner and his assistants shall have 
free access to all the books, papers and documents that 
relate to the business of the society, and may summon 
and examine under oath its officers, agents and em- 
ployees. The expense of such examinations shall be paid 
by the society. The examination shall be made at least 
once in three years. 

An examination of a society whose business is proper- 
ly conducted is beneficial, for the reason that the State 
insurance department issues a report affirming that all 
is well. An examination is furthermore a protection to 
the public against dishonest and fraudulent organiza- 
tions which may pose as fraternal societies. A report of 
examination is a certificate of good management and 
financial soundness. Once in a while a society requests 
a special examination, in which the insurance depart- 



ANALYSIS OF THE LAW 187 

ments of several States join, in order to inform the pub- 
lic 'of the true state of its business. 

Liquidation. Section 24 prescribes the procedure 
to be followed in closing up the affairs of a society. 
Whenever an examination discloses that any domestic 
society has failed to comply with the Law, or is exceed- 
ing its powers, or is not carrying out its contracts in good 
faith, or is transacting business fraudulently, or its mem- 
bership may become less than four hundred, or it shall 
desire to discontinue business, the superintendent of in- 
surance shall present the facts relating thereto to the at- 
torney general. If the attorney general shall deem that 
the circumstances warrant action, he may commence an 
action in quo warrant o in a court of competent jurisdic- 
tion. The officers of the society shall be notified by the 
court of a hearing. If the facts appear that the business 
should be closed, the society shall be enjoined from carry- 
ing on any further business, and a receiver shall be ap- 
pointed. 

Several points relating to liquidation stand out clearly. 
The superintendent of insurance can only lay the facts 
before the attorney general ; the latter makes the decision 
as to whether court action is necessary. The court shall 
take no action until the officers of the society have been 
notified and have been given a reasonable opportunity to 
show why such proceedings should not be commenced. 

Power Limited to Attorney General. The attorney 
general is the only person who can make application for 
injunction against, or proceedings for dissolution of, or 
the appointment of a receiver for any domestic society or 
branch thereof (Section 25.) 

Examination of Foreign Societies. The same regu- 
lations as for domestic societies apply for examination 



188 FRATERNAL INSURANCE 

of any foreign society transacting business in the State- 
or applying for admission (Section 26). In lieu of such 
examination, the superintendent may accept the exam- 
ination of the insurance department of the State, ter- 
ritory, district, province or country where such society is 
organized, and this is the usual course followed. 

No Adverse Publications. The superintendent shall 
make public no report, pending, during or after an ex- 
amination of any society, until a copy shall have been 
served upon the society, and it has been afforded a rea- 
sonable opportunity to answer (Section 27). 

Revocation of License. For certain causes the su- 
perintendent of insurance may revoke the license of any 
society to transact business in the State, but not until the 
society has had an opportunity to show cause why it 
should, not be revoked (Section 28). All decisions and 
findings of the superintendent made under the provisions 
of this section may be reviewed by proper proceedings 
in any court of competent jurisdiction, as provided in 
Section 16. 

Exemption of Certain Societies. The provisions of 
the New York Conference Law do not apply to societies 
which are not strictly benefit or insurance orders (Sec- 
tion 29). The exemption is extended to Masons, Odd 
Fellows and similar organizations, to societies which lim- 
it their membership to any one hazardous occupation, to 
similar societies which do not issue insurance certificates, 
to associations of local lodges of a society which provide 
death benefits not exceeding five hundred dollars to any 
one person, or disability benefits not exceeding three hun- 
dred dollars in any one year to any one person, or both, 
and to various other organizations of a religious, char- 
itable or benevolent character, under certain rules and 
restrictions. 



ANALYSIS OF THE LAW 189 

Societies paying benefits in case of death or disability 
resulting solely from accidents may come under the pro- 
visions of the Act. 

Exempt from Taxation. Fraternal benefit societies 
are exempt from all and every State, county, district, 
municipal and school tax, other than taxes on real estate 
.and office equipment (Section 30). 

Penalties. Section 31 prescribes penalties for mis- 
demeanors and perjuries under the Act. 



CHAPTER X 
FACTORS IN SUCCESSFUL OPERATION 

In viewing the fraternal history of fifty years we must 
come to the conclusion that the chief result of the sys- 
tem's progress is a standardized plan of operation. Some 
writers believe that the greatest benefit which evolution 
has handed down to the societies is a solvent financial 
basis. They hold that the security of the future which 
has become the underlying factor in fraternal insurance 
is the greatest heritage and that all other elements are 
incidental to this. I agree with them in this particular 
to the extent that without the reserve basis for its cer- 
tificates the fraternal system would face extinction in 
the near future. The tremendous struggle for adequate 
rates saved the societies. If readjustment had not come 
when it did, the fraternal system would today be marked 
for a speedy end. This is not vain prophecy. We have 
only to observe the failure and disappearance of a num- 
ber of societies which were popular forty years ago and 
which postponed too long or failed to readjust their rate 
plans. Without readjustment this would have been the 
inevitable end of all. Others might have come forward 
to repeat the experiment, but without evidence of reform 
their certificates would have become so unpopular as to 
suffer universal rejection by the public. Certainly the 
system could not endure without solvent operation, but 
the reserve plan is simply one of the factors of success- 
ful operation of today. The fraternal system has evolved 
a code embodying sound practice resulting from ex- 
perience and the principles are the foundation stones of 
successful operation. 

190 



SUCCESSFUL OPERATION 191 

The analysis of statutory regulations given in this 
volume describes the factors in operation which were 
deemed necessary to be imposed by the legislative power 
of the various States. They were stated in the text of 
the law, and they have been explained in relation to the 
reasons for their adoption, the various performances 
required of the societies in conforming to the law, and 
the effects which follow. Some of these are so ingrained 
in the timbers of the fraternal edifice that there must 
necessarily be some repetition in further discussions. 
Others are factors aside from statutory requirements, 
but nevertheless vital to success. 

What we behold in fraternal operation today is a sys- 
tem of principles, rules and regulations, some required, 
others in use through custom and good sense, and which 
is the outcome of fraternal development. The societies 
have passed through their era of trial; they are on the 
threshold of a new age; they possess the wisdom and 
experience accumulated during two generations of fra- 
ternal endeavor. This wisdom and this experience com- 
prises their code. False steps need not be taken again; 
some of their past mistakes are prevented by law from 
recurring; they have stepped from the sands of inade- 
quacy to the solid rock of the reserve plan. Why should 
not the next fifty years become the prosperous or golden 
age of f raternalism ? 

Attaining Solvency Readjustment. In a few years 
a discussion of measures necessary to attain solvent oper- 
ation will have become out of date. No longer will the 
problems of adequate rates and sufficient reserves arise 
to trouble leaders and members. The question of sound 
finances will have become one of the past because the 
societies either will have readjusted and attained per- 



192 FRATERNAL INSURANCE 

manence or have failed, and the laws of the States pre- 
vent the organization of another unsound society. But 
there are societies today going through the process of 
readjustment and, until they attain their goal, the prin- 
ciples at the foundation of the movement should be un- 
derstood. 

Readjustment is that experience through which a 
society must pass in overcoming an unsafe financial con- 
dition to reach actuarial soundness. This means that 
its condition must become such that its promises of bene- 
fits to be paid in the future will be realized. The condi- 
tion is determined by actuarial calculation, and valuation 
discloses its degree of actuarial solvency. A society may 
have millions in its treasury today and be commercially 
solvent, yet its inevitable failure may be expected unless 
actuarial solvency is shown. This was the vital fact 
which so many members of societies in years past were 
loath to accept. Readjustment, therefore, is the process 
of attaining actuarial solvency. 

The history of the fraternal system tells us that the 
early societies started on plans which provided for only 
temporary protection, that they endeavored to* operate 
without reserves, hoping meanwhile that their experience 
would not result in increasing mortality with the advanc- 
ing age of members, and that finally the inevitable oc- 
curred. They were forced to readjust their plans, and 
that meant that greater contributions were required. On 
account of the inherent nature of fraternal operation the 
members had to vote the increases. Sometimes they 
temporized, which resulted in delaying the evil day. 
Others attacked the problem with wisdom and resolu- 
tion and came through safely. The chief fact about re- 
adjustment is that it must be thorough. The author likes 



SUCCESSFUL OPERATION 193 

to compare this process to a tradition in Moslem writ- 
ings. It is the idea of Al Sirat, which is generally pic- 
tured as the bridge to Paradise over the infernal fire. 
"It is narrower than a spider's thread and sharper than 
a sword; the good pass switfly over it, but the wicked 
soon fall into Hell." 

"New Blood" Theory. The requisite to a perfect 
readjustment is the adoption and enforcement of plans 
which require each and every member to carry a reserve 
sufficient to pay the insurance at maturity. The ideal 
is to attain a level rate. Many of the members and some 
of the leaders of early times tried to beguile themselves 
with the theory of "new blood." They conceived the 
idea that by admitting large numbers of new members 
the death claims of old members would be paid out of 
the contributions of those who were taking their places 
in the ranks. A society needed a steady inflow of cash 
to pay claims to the beneficiaries of those dying, and the 
new members would supply it. This was the theory of 
"new blood." The societies which attempted to apply 
the theory discovered that the death claims came faster 
as the society grew older; therefore it was necessary to 
write a cumulative number of new members in each 
succeeding year. It was nothing more than the idea of 
the "endless chain." It forecast an overwhelming and 
disastrous end. The fact is that the larger the number 
of new members admitted on inadequate rates, the great- 
er the deficiency. Such societies were simply piling up 
trouble for the future, and the greater production of 
new members foreshadowed a mightier deficiency. The 
theories of an "endless chain" and "new blood" were 
destined to follow the same course and arrive at the 
same end. 



194 FRATERNAL INSURANCE 

Methods of Readjustment. The processes which 
fraternal benefit societies might adopt in attaining solven- 
cy are outlined in the New York Conference Bill. These 
have been adjudged equitable and correct through ex- 
perience. One of the first discoveries of fraternalists 
was that new members on adequate rates were entitled 
to have their reserves segregated from those of members 
on inadequate rates. In some early readjustments it was 
popular to throw the burden of insufficiency upon new 
members, because old members had "borne the heat and 
burden of the day." But a more unjust and iniquitous 
scheme was never devised. It was, in reality, a plan to 
mulct new members to meet the deficits of those who had 
enjoyed protection at less than cost. But classes of old 
members have been assisted by applying the savings from 
mortality and the excess interest earnings of new classes 
to meet their mortality. In this way the new members 
furnished relief without endangering their reserves. 

Valuation was employed as a correct process to deter- 
mine the deficiency which old members had allowed to 
accumulate. In many cases it was found necessary to 
assess a prohibitive rate against old members if deficien- 
cies were to be overcome and justice applied. Rather 
than force such members to withdraw and lose what 
credits they were entitled to, the deficiencies were met 
by putting liens on the certificates. The amount of the 
lien was deducted from the face of the certificate. 
In some cases the liens have been reduced or wiped out 
by requiring the old members to pay a moderate increase 
of rates, or by applying the savings from favorable mor- 
tality or excess interest earnings. The differences of 
status in certificates have led to establishing classes of 
members, and classification of members with segregation 
of funds is an important principle in readjustment. 



SUCCESSFUL OPERATION 195 

..i 

Equity between the various classes of members de- 
manded that no member be required to accept the burden 
of anothers' deficiency. A new member has a right to 
expect that if he joins a society and pays a level rate 
based on a recognized table of mortality he shall not be 
robbed of his reserves in the interest of old members. 

The transfer privilege has been a feature of practically 
all readjustments. When new classes on adequate rates 
were established the old members were given the privilege 
of transferring, and they were credited with whatever 
reserve their old rates had accumulated, and required to 
pay a rate considered safe and sound. Or the old mem- 
bers could remain on their old rates and take the risk of 
having the number of assessments increased as the mem- 
bers began to die in greater numbers. The immutable 
law of mortality soon required the levying of extra as- 
sessments, and when these became exorbitant the class 
was usually wiped out by the lapsation of its members. 

Importance of Classification. Unless the new rates 
of a society are based on a recognized table of mortality, 
and old as well as new members required to pay them, 
with the new members at age of entry and the old ones- 
at attained age, such rates are not adequate. Even when 
old members are rerated at attained ages, sometimes 
their physical condition is so poor that an unfavorable 
mortality experience follows, and their rates under such 
conditions could not in truth be called adequate. An ade- 
quate rate is one of which accumulates and maintains a 
sufficient reserve. 

It is even more important, therefore, that members be 
classified and the assets segregated when there is dispro- 
portion in their status. If old members are required to 
pay new rates which are applied according to their age 



'96 FRATERNAL INSURANCE 

of entry, or if such rates are adjusted on an appraisal of 
what the members can stand, or if such old members are 
permitted to continue on old rates, then it is certain that 
they will not pay the cost of their protection. Mean- 
while if new members on sound rates are being admitted 
there is indeed a disparity between them. Classification 
is therefore necessary if all are to receive justice. 

Let us look at the case of a new member. He enters 
a society and starts to pay an adequate rate from the 
beginning. His rate is based on a table of mortality and 
computed so as to lay aside a reserve which will keep it 
level for life. It should not be necessary for him to pay 
an increase at any time unless a bloody war or a wide- 
spread epidemic causes the society to lose many members. 
His rate is supposed to be just, equitable and sufficient, 
and so it is, unless a portion of his credit is used to meet 
some other person's deficiency. And this is what will 
happen if the funds to his credit are mingled with the 
funds of inadequate-rate members. He will be robbed. 
The guarantee of a level rate will become a mockery. It 
would be just as equitable for the officers of a savings 
bank to transfer a portion of the credit of one depositor 
to another. 

An adequate rate, as it is understood in the parlance 
of life insurance, is sufficient to maintain the reserve of 
the member paying such a rate, but it is not adequate if 
an attempt is made to devote it not only to this purpose 
but to overcome somebody else's deficiency. This is the 
reason for classification. The purpose is to maintain 
each member's reserve credit intact. Classification pro- 
motes justice. It makes unnecessary the necessity of 
raising the adequate-rate member's rate in the future. 



SUCCESSFUL OPERATION 197 

Whole Life Protection at Level Rates. The funda- 
mental idea supporting the transition of the fraternal 
system to a solvent basis was that its protection should 
be whole life insurance at level rates. This requires 
rates sufficiently large to accumulate proper reserves. 
Level rates are the popular ones. It is an innate charac- 
teristic of the average man that he likes to know what 
his protection is going to cost. The fraternal system 
gave the post-mortem basis and term insurance each a 
trial, and it discovered by such experience that level rates 
are best for its purposes. 

A natural consequence of the adoption of level rates 
was the creation of reserves, and the reserve basis of 
their operation has given fraternal societies the right and 
opportunity to issue various forms of certificates adapted 
to the wants of the public. 

Various Forms of Certificates. While a level rate 
certificate with assessments payable until the member's 
death is at the foundation of fraternal insurance today, 
the societies have gone further and have issued others. 
These include the following : 

Limited Payment Whole Life. This certificate gives 
protection for the duration of life, but the rate payments 
are completed in a limited number of years. The period 
of contributing usually lasts ten, or fifteen, or twenty 
years. The advantage of carrying a certificate of this 
character is that the member may pay for it in his pro- 
ductive years. Sometimes a limited payment certificate 
includes old-age disability, income payments and other 
features incidental to its maturity. 

P aid-Up at Age 65 or 70. The certificates which be- 
come paid-up at ages 65 or 70 are limited payment and 
are based on identically the same principle as the 10, 15 



198 FRATERNAL INSURANCE 

or 20-year payment certificates. The only difference is 
that no matter at what age the member joins his pay- 
ments of assessments cease when he reaches the desig- 
nated age, either 65 or 70, and the rates are computed 
accordingly. 

Term Protection. Very little term protection is writ- 
ten by fraternal benefit societies and then only to an ap- 
plicant who wants insurance for a short time only. The 
trouble with a straight term certificate is that the period 
of protection ends positively and finally on a given date. 
This drawback is overcome in convertible or renewable 
term protection. A convertible term certificate gives the 
member the privilege of converting it into permanent 
protection, and renewable term must be renewed at stated 
'times. The rates for renewable term protection increase 
at each renewal. 

Monthly Income. Within recent years monthly in- 
come insurance has become popular and more certificates 
of this character are being written with each passing 
year. This is whole life protection with the benefits pay- 
able to the beneficiaries in instalments, usually covering 
periods of ten, fifteen or twenty years, and sometimes 
for the life of the beneficiary. It is a deplorable fact 
that many widows and orphans who are recipients of 
insurance benefits in lump sums lose much of the pro- 
ceeds in unwise investments or extravagant living. Some- 
times they fritter away such benefits and are left desti- 
tute and the purpose of their protection is destroyed. 
Monthly income insurance prevents this. One effect of 
selling such protection is that the applicant is more likely 
to take a larger certificate than he would otherwise. He 
is forced to see how small is a few thousand dollars when 
measured in terms of income, and he learns what ade- 
quate protection should be. 



SUCCESSFUL OPERATION 199 

i 

Step-Rate. The renewable term plan has been im- 
proved in step-rate certificates. Step-rate refers to the 
method of paying premiums and means that the rate in- 
creases each year or at longer intervals. An attractive 
step-rate certificate is one which carries a small reserve 
in order to insure a level premium after age 60 or 65 or 
for the accumulation of withdrawal options. A good fea- 
ture about step-rate protection is that it requires but 
small premiums during the younger years when the mem- 
ber is getting a start in life. 

Old- Age Disability. A number of the societies issue 
certificates which not only become paid-up at age 70 but 
they pay old-age disability benefits to the insured. These 
are comparable to a pension and are paid monthly, quar- 
terly or annually, sometimes for ten years and sometimes 
for the remainder of life. The idea upon which such 
insurance is grounded is that the member's dependents 
are self-supporting by the time he reaches age 70 and he, 
in turn, becomes dependent. He has greater need of the 
benefits than have his beneficiaries. 

Sickness and Accident Disability. Some societies pay 
benefits only for sickness and accident disability and they 
are thriving institutions. Such protection is usually to 
recompense the member for loss of his earning power 
when sick or disabled. Other societies issue health and 
accident insurance certificates to their members for addi- 
tional rate payments and a few provide limited disabil- 
ity benefits in their standard certificates at the regular 
rates. 

Joint Life. These are certificates issued on two lives, 
customarily to a husband and wife. When one dies the 
benefit is paid to the survivor and the protection termi- 
nates. The rate is considerably cheaper than it would be 



200 FRATERNAL INSURANCE 

for two certificates on their lives because the society is 
liable for only one benefit payment, but the risk of an 
early death is increased because there are two lives 
covered. 

Juvenile. The insurance of children by fraternal 
societies was taken up when the whole family protection 
movement resulted in the enactment of State laws giving 
them that privilege. More will be said on this subject 
in the discussion of whole family protection. 

Maternity Benefits. A benefit is paid by some societies 
to a member giving birth to a child. 

Because of the fact that some societies began to issue 
different kinds of certificates after readjusting their 
plans of operation the question has been raised as to 
whether such societies are violating the fraternal prin- 
ciples of true protection and mutuality. Such criticism 
smacks of the old-time abhorrence of anything partaking 
of commercial insurance plans and old-line company 
methods. It is similar to the early opposition to the re- 
serve plan. 

Such critics would have the fraternal system confine 
itself to the writing of whole life protection with con- 
tributions continuing throughout life. They cannot deny, 
however, that a limited payment certificate, or one paid- 
up at age 65, gives just as complete protection as the 
other. There is no difference in the protection afforded 
by any of these ; the difference is in the method of mak- 
ing contributions. They are based on the same prin- 
ciple that of the reserve. And since the rate payments 
are on a different basis there must necessarily be a dif- 
ference in the amount of the accumulations. One is just 
as potent for protection as the other. 

Because the societies finally attained the reserve plan 



SUCCESSFUL OPERATION 201 

for making certain the payment of benefits, they are cer- 
tainly entitled to give their members the advantage of 
the various facilities for accumulating reserves. The 
simplest benefit under a level premium is in the ordinary 
whole life certificate; it permits the insured to pay part 
of the high natural premiums of old age in his younger 
years, thus distributing the contributions equally through- 
out his life. Next comes the 20-payment life, which gives 
protection for the whole of life, except that it favors to 
a greater extent the principle of paying the cost in young- 
er years. And this principle is further advanced in 15- 
payment and 10-payment certificates. Then we have 
old-age pensions and benefits which are paid to bene- 
ficiaries as income all of which are types of reserve 
protection. 

Withdrawal Equities. The theory supporting the 
plan of granting withdrawal equities is that the reserve 
accumulated to the credit of a member belongs in fact 
to him. One of the truths which fraternalists must face 
is that under the reserve plan a member pays more than 
the natural cost of his protection during the younger 
years, thus accumulating a fund to meet the excess of 
cost over the contributions in older years, and that if he 
desires to withdraw, he is, in equity, entitled to the re- 
serve. He is not entitled to all of it, however, because 
his withdrawal constitutes an adverse selection against 
the society ; history shows that those who lapse or with- 
draw are mainly healthy members who, otherwise, would 
have contributed many years longer. It is called adverse 
selection because the lapsing of healthy members in- 
creases the ratio of poor risks. Therefore the surrender 
value usually given a member withdrawing is less than 
the full reserve. This overcomes the effects of adverse 
selection. 



202 FRATERNAL INSURANCE 

Adverse selection is even more injurious to a society 
when it results from the withdrawing member taking ex- 
tended insurance. Persons whose health is so poor that 
they do not expect to live longer than the period of the 
extended insurance they may obtain are tempted to take 
the surrender value in an extension of the protection 
without contributing any longer. The contributions 
which they would have paid in the extended period be- 
fore their deaths are a direct loss to the society. 

Another withdrawal equity is given in paid-up insur- 
ance. The reserve which has accumulated to the credit 
of the member is used in this instance to purchase a paid- 
up whole life certificate. 

The taking of withdrawal equities, unless done right- 
ly, is apt to be accompanied by more harm than good. 
Indiscriminate withdrawals are hurtful to the interests 
of beneficiaries. Real life insurance protection is taken 
in the first place to provide for the member's dependents 
and as long as such persons are dependent upon him the 
protection should be kept up. When there are depend- 
ents and the certificate stands between them and possible 
poverty its surrender constitutes virtual robbery. Fra- 
ternalists should discourage any general tendency to take 
withdrawal equities. The only cases in which the prac- 
tice can be commended are when dependency has ceased 
to exist and the insured needs the cash, or when paid-up 
or extended insurance will satisfy the needs of the bene- 
ficiary. 

Whole Family Protection. The insuring of chil- 
dren and the establishment of juvenile departments by 
fraternal benefit societies have become features of their 
operation within recent years. Although the business is 
properly termed juvenile insurance, the movement in 



SUCCESSFUL OPERATION 203 

fraternal circles has become known as whole family pro- 
tection because it gives a society the privilege of insur- 
ing all the members of a family. Until the year 1917 the 
business of insuring children was a monopoly of the 
great industrial life insurance companies. They de- 
veloped it and their profits from it were enormous. The 
inherent character of the business made it expensive. 
Industrial policies were rarely larger than an amount 
sufficient to pay funeral expenses. The collections were 
made weekly or monthly, averaging a few cents at a 
time. It was necessary for the collectors to call on scores 
of people each day in order to make the undertaking re- 
munerative, and for this reason the industrial companies 
were forced to confine their operations to thickly popu- 
lated districts. They insured about twelve million chil- 
dren, but there were millions of juveniles in small towns, 
villages and on farms which they could not reach. More- 
over, their collectors were unable to go into a large num- 
ber of city homes. 

Insurance protection on the life of a child is just and 
right because the parents or guardian have an economic 
interest in the child as well as a sentimental one. In the 
event of the death of a child the parents are liable for 
the expenses of burial, and it is this expense which juve- 
nile insurance covers. The benefits are limited in amount 
to a sum which will cover funeral expenses and are, in 
truth, funeral benefits. Contrary to the misconception 
held by a few, no children are murdered for the insur- 
ance; the law limits the size of the policy and the gain 
would not be an inducement for such depravity. 

Fraternal societies have been prevented from writing 
juvenile insurance from the beginning, not because of 
any positive objection, but because the founders of fra- 



204 FRATERNAL INSURANCE 

ternal insurance failed to conceive that child protection 
should be a part of their service to humanity. Therefore 
several million children of fraternalists have gone with- 
out insurance and a million or more of the others were 
forced to take the policies of industrial companies. The 
collectors or debit men of the companies were propa- 
gandists against fraternal benefit societies. Fraternalists 
came to a realization that their children were being edu- 
cated by these debit men to believe that fraternal insur- 
ance was not safe. To offset such propaganda it became 
necessary for fraternalists to obtain legislation which 
would permit them to insure their own children. 

In 1907 the National Fraternal Congress instructed 
the Committee on Statistics to investigate child insur- 
ance. Abb Landis prepared a statement on the subject 
which was the basis of the report by Chairman D. P. 
Markey to the Congress session in 1908. The Committee 
suggested an amendment to the fraternal uniform bill 
which would permit the societies to write juvenile insur- 
ance with rates and benefits based on the Standard Indus- 
trial Table of Mortality. The report was accepted and 
placed on file. 

In the years that followed an agitation for juvenile 
insurance continued and it became known as the whole 
family protection movement. At the convention of the 
National Fraternal Congress of America held in 1915 at 
Minneapolis a resolution endorsing whole family protec- 
tion was introduced by George Dyre Eldridge. It passed 
by unanimous vote. The Committee on Statutory Legis- 
lation presented the matter to the National Convention 
of Insurance Commissioners, and in April, 1916, a com- 
mittee of commissioners was appointed by the Conven- 
tion for the purpose of investigating child insurance by 



SUCCESSFUL OPERATION 205 

fraternal societies. The 1916 convention of the National 
Fraternal Congress at Cleveland reaffirmed its stand. On 
December 13, 1916, in New York City, an agreement was 
reached between the National Convention of Insurance 
Commissioners and the Committee on Statutory Legisla- 
tion of the N. F. C. of A. on a model bill for uniform 
legislation. 

Text of the uniform Whole Family Protection Bill in 
brief permits the insuring between ages two and eighteen 
of children of members, or those for whose support and 
maintenance a member is responsible. Societies may or- 
ganize and operate branches for such children, but the 
juveniles shall have no voice in management. No infan- 
tile certificates shall be put in force until simultaneously 
at least five hundred are ready to be issued and upon 
which at least one assessment has been paid, nor can the 
society continue to issue such certificates if at any time 
the number of lives insured becomes less than five hun- 
dred. The benefits payable upon death of a child shall 
not exceed the following amounts at ages at next birth- 
day: Two, $34; three, $40; four, $48; five, $58; six, 
$140; seven, $168; eight, $200; nine, $240; ten, $300; 
eleven, $380; twelve, $460; thirteen to fifteen, $520; six- 
teen to eighteen, $600. The rates are based on the Stan- 
dard Industrial Table of Mortality or the English Life 
Table Number Six for which twenty-five cents a month 
is considered sufficient. A splendid feature of the law is 
that assessments may be skipped or returns may be made 
from any surplus in excess of the reserve and other lia- 
bilities. The law includes the reserved right to assess 
extra contributions in case the reserve becomes impaired. 
It also requires that the funds of the juvenile department 
shall be segregated from the funds of other classes, al- 



206 FRATERNAL INSURANCE 

though the portion intended for expenses may be mingled 
and used with the expense funds of other classes. When 
a juvenile member reaches the minimum age for admis- 
sion to the adult class the certificate may be surrendered 
for cancellation and exchanged for any other form of 
certificate issued by the society. 

Immediately after the approval of the Whole Family 
Protection Bill the fraternalists started a campaign to 
have it enacted into law in the various States. They 
were successful during the legislative season of 1917 in 
several States and their efforts were continued in the 
years that followed. By the close of the legislative sea- 
son of 1919 the bill had become a law in more than one- 
half the States of the Union. In a majority of these it 
was adopted by the legislatures exactly in the form as 
approved. In several others it was amended to permit 
the societies to write insurance on the lives of any and all 
children. In New York the measure enacted requires 
that juvenile members may be transferred only to an 
adult class on adequate rates organized before the society 
starts writing child insurance. 

When fraternal societies organized juvenile depart- 
ments the immediate effect was that the members were 
permitted to protect their children with insurance issued 
by the societies in which they put their faith. Thousands 
of young people were added to the ranks of the insured. 
Others were privileged to transfer their protection from 
the companies which fostered continual criticism of fra- 
ternalism and carry it in the society which insured the 
remainder of the family. But the greatest influence of 
whole family protection will be as a training school of 
fraternalists for the future. The juvenile departments 
are the kindergarten of fraternalism. The children who 



SUCCESSFUL OPERATION 207 

become members will be taught fraternal precepts and 
ideals, and we may expect that they will become better 
fraternalists, exemplary citizens, loyal patriots and will 
excel as home-makers. The future will see them happy, 
contented and resourceful Americans. 

Women Fraternalists. Some of the largest socie- 
ties in the fraternal system are managed by women. The 
memberships of a few are composed exclusively of wo- 
men, but a majority of the women's societies admit men 
as benefit members. When the first societies were or- 
ganized it was the intention of the founders to confine 
membership to men, but among the many changes in f ra- 
ternalism since is the admission of women. Civiliza- 
tion has advanced and become more complex and with 
progress has come a broader sphere for women; their 
duties and responsibilities have increased, and it is only 
natural that their need of life insurance protection en- 
larged. The Degree of Honor, organized in 1873, was 
the first society admitting women and was an auxiliary 
of the Ancient Order of United Workmen. Practically 
all of the leading societies had auxiliaries for women, 
but most of the societies which have been founded in the 
past two decades admit women on the same basis as 
men. 

The societies operated solely by women are among the 
most progressive in the field. Their business transac- 
tions are on a high standard, and the ability with which 
they are managed surpasses that of some of the orders 
exclusively for men. It is a significant fact that less than 
a score of the societies in the field today are limited to 
men. Many of the old organizations have amended their 
laws to take in women and they have discovered that the 
best fraternal workers are the wives and daughters. It 



208 FRATERNAL INSURANCE 

would be difficult to estimate the percentage of women 
in the combined membership of the fraternal system; it 
may equal that of the men and is growing. Moreover, 
the leaders of fraternalism can point to thousands of 
local lodges which, without the enthusiastic influence of 
women members, would be dormant. 

The question of women as insurance risks is one which 
has been discussed with considerable heat. Among the 
commercial life insurance companies it has been difficult 
for women to obtain policies, except in small amounts, 
because of the close scrutiny given the purposes for 
which the policies were to be used, as well as a limitation 
of the classes of beneficiaries. The prejudice against 
insuring women probably came from the same source as 
the prejudice against the broadening of women's sphere 
in business and politics. In the early years of life insur- 
ance only men were accepted and at that time women 
were prevented by public opinion from educating them- 
selves or engaging in gainful occupations. The only pur- 
suit open to them was that of house servants. The real 
lady was supposed to be a simpering, helpless doll who 
never left the home unchaperoned, the type so carefully 
portrayed by Thackery. Under those conditions life 
insurance was unnecessary. Therefore the field for in- 
suring women has developed with their emancipation 
and the greatest strides in this respect have been made 
by fraternal' benefit societies. Their inclusion has been 
excellent for the system because they are persistent in 
paying premiums and their mortality experience has 
been favorable. Most societies report that the longevity 
of female risks is better than that of males. 

Sphere of the Actuary. Probably one of the great- 
est sources of trouble in the early experience of the fra- 



SUCCESSFUL OPERATION 209 

ternal benefit system was that it started without actuarial 
advice and when such advice was first given, the socie- 
ties disdained to follow it. The result was that the sys- 
tem began business with an inherent weakness; it had 
no scientific course to follow; its foundation was not 
builded strong enough to support the structure which 
rested upon it. The societies were prosperous in their 
early years, but it was an artificial prosperity caused by 
the flush of beginner's enthusiasm. They unwittingly 
ignored the law of mortality, but their ignorance could 
not save them from the penalty imposed by this law. 
They had a warning expressed in the decrease of funds 
when the inevitable increase of mortality came. They 
attempted to fend and parry by adopting halfway re- 
adjustments. Such a remedy is like half-hearted salvation 
or a confession with reservations. The law of mortality 
sweeps as clean as the breaking waves on the seashore 
where no half-way measures will stand against its thun- 
derous surge and wash. It has been the universal ex- 
perience of fraternal benefit societies that unscientific 
and inadequate-rate plans at the beginning will require 
a complete and thorough readjustment sooner or later. 
The alternative is failure and destruction. 

This could have been prevented by actuarial calcula- 
tion. By estimating the expected deaths upon a reliable 
table of mortality, with an allowance for interest earn- 
ings upon accumulated reserves, the proper rates for 
enduring protection could have been calculated. This 
is the business of an actuary. In his sphere he is master 
of a science absolute and unchangeable. The first socie- 
ties ignored the actuary, but the newer organizations 
profited by the experience of their predecessors, and 
actuaries were called to the rescue. The actuary is a 



210 FRATERNAL INSURANCE 

friend of fraternal operation; he provides methods by 
which fraternal insurance becomes sound and enduring. 
Due to his counsel the system is proud that it has many 
societies on a basis of more than 100 per cent, actuarial 
solvency and the others are making regular approaches 
to complete security. 

The laws upon which sound operation is based are 
not made by actuaries. They are made by God and are 
as inexorable as the hand of death. No human power 
can control mortality. Careful selection of risks can vary 
the mortality experience of groups, but nothing can 
change the result. Actuaries compile the experience of 
groups upon which records have been kept, and they 
interpret the relations of mortality, reserves and interest. 
Their science does not permit them to say that an insur- 
ing organization can have a permanent existence upon a 
table of rates that some person imagines is equitable, 
but from the actual experience of the organization they 
can determine closely the future results. The true ac- 
tuary must be absolutely honest, both with himself arid 
the organization engaging his services; he should not 
be wedded to theories, but should make known the re- 
sults of his investigations even though they upset some 
of the results of former work. His probity, or his lack 
of it, will affect future generations. Life insurance cer- 
tificates are promiess to pay which mature in a more or 
less distant future, and the fidelity, assiduity and accur- 
acy of the actuary's labors determine whether such prom- 
ises will be met. 

The science of actuaries needs no defense or justifica- 
tion because the law upon which it is based provides its 
own vindication. The author of this volume has heard 
actuaries damned because the teachings of actuarial 



SUCCESSFUL OPERATION 211 

science dictated that fraternal practices of the past should 
'be abandoned. He has heard fraternalists declare that 
the only trouble with the fraternal system was the actu- 
aries. During the period of readjustment many of the 
recalcitrants blamed actuaries for fraternal troubles in- 
stead of the fact that societies had been operating on 
unsound plans. But no matter how vehement the con- 
demnation or highly placed the person voicing such 
thoughts the actuaries have been fortified by their faith. 
Their calculations were accurate and they needed only 
time to justify the truth of their teachings. Time is the 
great destroyer of error, it purges the world of false 
doctrines, and while it takes patience to await Time's 
vindication, the principles of truth prevail in the end. 
How glorious it must be, not in a vengeful sense, but as 
sweet vindication, to have the truth of his calculations 
justified and proven to the world in an actuary's life- 
time! 

Some of the greatest men in the fraternal system have 
been the actuaries who have led the societies to honest 
operation. They have had to bear the brunt of attacks 
of demagogues who knew the teachings were correct 
and of ignorant persons who could not understand rea- 
son and thought only of the inroads on their pocket- 
books, but to their credit the actuaries stood steadfastly 
by their science. It would be interesting to know what 
an actuary, when alone with his meditations, has thought 
of the foolishness he has had to oppose and of the insin- 
cerity of some leaders who have pandered to popular 
prejudice against rate adjustments. However, the glory 
of the actuarial profession is that the principles of sound- 
ness and endurance are winning and the result will be 
a permanent fraternal insurance institution. 



212 FRATERNAL INSURANCE 

Reserved Right to Assess. One of the most im- 
portant principles of fraternal operation is that the mem- 
bers of societies are insurers as well as being the insured. 
This is a fundamental of mutuality. By reason of the 
co-operative character of a fraternal benefit society the 
members are under obligation to each other for the 
benefits promised. It is the true spirit of a mutual enter- 
prise. No profit from the business accrues to any per- 
son; all share alike; and therefore all should be obli- 
gated alike. Since the proceeds to pay death claims in 
a mutual organization come from the members and since 
there is no other source the members are under a liabil- 
ity to meet deficiencies. This liability is accepted by the 
society in the reserved right to assess. It means that 
members can be assessed for extra contributions when 
such are necessary. 

The reserved right to assess has been the object of 
criticism because the right has been used by various 
societies to collect extra or increased assessments from 
members who had paid rates so low that deficiencies in 
their reserves had resulted. It was criticism born of an 
unpopular touch on the pocketbook, rather than injus- 
tice or inequity. The reserved right to assess is based 
wholly on justice and equity and criticism can in no way 
detract from the honesty of its purpose. 

Much of the criticism was voiced by agents of com- 
mercial life insurance companies in a propaganda against 
fraternal insurance. They argued that the reserved right 
to assess was an unsound doctrine because members 
would not pay extra assessments and would lapse their 
protection; their purpose was to extol by comparison 
the plan of old-line insurance which collects maximum 
premiums at a fixed rate which, on the participating plan, 



SUCCESSFUL OPERATION 213 

returned part of the surplus as "dividends" to policy- 
holders. It would be just as sensible to say participating 
insurance is unsound because policyholders will lapse 
their insurance when their "dividends" are not paid. 
Such surplus premiums were withheld wholly or in part 
by a number of companies following the influenza epi- 
demic of the winter of 1918-1919. On the contrary 
most of the policyholders who failed to receive their 
dividends continued their insurance. On the contrary, 
too, the members of fraternal societies who paid extra 
or increased war and influenza assessments in 1917, 1918 
and 1919 retained their protection. The experience of 
fraternal benefit societies during the war and the epi- 
demic is a complete vindication of the right to assess. 

The chief virtue of the reserved right to assess as it 
is used today is that it is an element of strength contrib- 
uting to the safety of reserves. It is conceded by all 
students of life insurance that it is necessary to maintain 
reserves in order to have level premium rates. The re- 
serve feature is a safety clause possssed by all organiza- 
tions writing life insurance and accumulating such re- 
serves, whether fraternal, old-line or association. Under 
ordinary conditions this measure of safety would be; 
sufficient, but no person can tell what the future will; 
bring. The passing of time is sometimes accompanied 
by epidemics and wars and experience of the past has 
shown that both of these increase the mortality of life 
insuring organizations. Mortality might become greater 
than that predicted by tables of mortality, and reserves 
are calculated on the predictions of such tables. Would 
not another safety clause be instrumental in maintaining 
the solvency of life insurance? If the contributions of 
the past had not been large enough to accumulate a fund 



214 FRATERNAL INSURANCE 

to withstand an unusual and unexpected epidemic, would 
common sense not demand that an extra contribution be 
levied in order to make the insurance safe? The sound- 
ness of the assessment clause was demonstrated in just 
these particulars as a result of the recent war and epi- 
demic. 

Fraternal benefit societies are fortunate that they can 
levy extra assessments. This feature in their plan of 
operation, called the safety clause, is indeed a measure 
to guarantee safety. Commercial insurance companies 
do not possess it ; they must collect maximum premiums 
in order to play safe without it. It is a concomitant of 
real mutuality; no profit-taking company is permitted 
to use it. Fraternal societies may collect only the ab- 
solute cost of insurance, whether term, level premium, or 
any other kind they are selling, plus a reasonable cost 
of operation, and the members keep the "dividends" and 
other additions in their pockets. When an epidemic 
comes the societies may use the privilege which the safe- 
ty clause confers upon them to collect the increased cost 
of mortality as long as is necessary, and in that way they 
regain their complete solvency. Let us glory in the re- 
' served right to assess. It is a splendid feature which 
'saves money for the members, yet it provides safety 
when there is need of an extra safeguard. 
| Representative Form of Government. Every insur- 
ance organization operating under the law regulating 
fraternal benefit societies must have a representative 
form of government. This is the essence of mutuality. 
Fraternal insurance is the one protective institution for 
the people which is controlled by the people. Just as 
long as control remains in the possession of the members 
it will continue under the rule of mutuality; but the 



SUCCESSFUL OPERATION 215 

moment control becomes vested in autocratic authority 
the institution becomes a game for profit. And mutual- 
ity, with control delegated to servants through represen- 
tative government, is the factor which makes protection 
safe. And the officers should be servants of the mem- 
bers, not masters. 

This very phase was at the bottom of the life insurance 
investigation of 1905 by the Armstrong Committee of 
New York, of which Charles E. Hughes was counsel. 
The investigation disclosed that the rottenness of life 
insurance companies was caused by the fact that the 
officers considered themselves masters and believed they 
could use the companies for their own purposes. The 
result was extravagance verging on criminality, exor- 
bitant salaries and manipulation of funds. Following the 
inquiry many of the companies took an immunity bath 
by going through a process of mutualization, in which 
control was supposed to be transferred to policyholders ; 
but these baths did not bring about representative govern- 
ment, because today the policyholders have nothing to 
say about the management of their companies. 

Fraternal benefit societies under their representative 
form of government have almost reached the ideal in 
life insurance management. The members meet in local 
lodges to discuss legislation and candidates, and their 
representatives go at stated times to meet in supreme 
lodge, a body which makes laws and elects officers and 
is the final court of appeal in questions affecting the 
society. The officers manage the business of the society 
according to the expressed wish of the membership. Real 
mutuality as practised by the societies results in econom- 
ical administration, fidelity and industry on the part of 
the officers, and control of their protection by the mem- 



216 FRATERNAL INSURANCE 

bers. Who can say that in the evolution of the fraternal 
system representative government has not been for the 
best? It was true that development was slow for some 
of the societies, but they persevered through difficulties, 
and the great outstanding fact about fraternal insurance 
is that over three billion dollars has been paid in relief 
to the dependents of deceased members at a cost far 
lower than that of any other philanthropic and humani- 
tarian agency in the world. 

Mergers and Reinsurances. During the past decade 
the fraternal system has seen a definite movement for 
consolidation and reinsurance of benefit societies. These 
contracts have become so numerous that it is important 
for the student of fraternal insurance to inquire into 
the conditions which cause them and the effects of such 
mergers on the certificate holders. Opinion among the 
leaders is divided. Some hold that the protection on 
thousands of members has been conserved and saved by 
consolidation. Others believe the business to be an evil. 
It is probably the evils which have crept into the busi- 
ness of negotiating mergers which have given some deals 
a poor standing and if these were eliminated the subject 
would meet with the approbation of all. 

The causes which move societies to accept a home for 
their members within another organization are based 
chiefly upon inability to make progress as an individual 
society. One cause is a needed readjustment of busi- 
ness plans and assessment rates. A society which has 
run the usual course until Old Mortality begins to call 
for extra funds to meet an increased death rate has 
sometimes found it impossible to persuade the members 
to vote for higher rates and the only alternatives are 
liquidation or reinsurance. Of these the most sensible 



SUCCESSFUL OPERATION 217 

is to seek reinsurance in a sound organization and place 
the members upon readjusted certificates with credit for 
whatever reserves they may have accumulated. Many 
of the mergers negotiated in the past have been for this 
very reason and thousands of members would have been 
without protection if the other alternative had been 
chosen and liquidation had taken its course. 

Then there are societies so small that the burden of 
maintaining the organization constitutes an overhead 
charge out of all proportion to the amount of insurance 
in force. True, all societies were small in their early 
years, but some remain small for various reasons and 
stagnation sets in. Merger with a going concern is the 
best solution of this difficulty. 

The merging of societies with similar plans, equal 
rates and ideals based on the same principles is also ad- 
vantageous for the organizations concerned and pleasant 
for the members. Some societies are successful because 
they are big. Others are unsuccessful because they are 
small. When success may be obtained by consolidation 
nothing should be placed in the way of its consummation. 
There is something inspiring and potent in the influence 
of a great society in which thousands take pride. The 
members work for its success and obtain pleasure in being 
identified with its progress. By all means when mergers 
will inspire greater loyalty and will extend the benefits 
of fraternal protection they should be encouraged. 

The mergers which should be prohibited are those in 
which there is no common ground on which the members 
of the consolidating societies can meet in fraternal and 
social relations, where the burden of reinsurance would 
become a heavy load for adequate-rate members and 
where the negotiations are conducted in a spirit of 



218 FRATERNAL INSURANCE 

profiteering. In the first category is the joining together 
of orders which, on account of religious, racial or occu- 
pational characteristics, would prevent the promotion of 
fraternal spirit. In the second is the saddling of a bunch 
of poor risks upon the members of a society on sound 
rates. And the third concerns the commissions to be 
paid the brokers who arrange the deal. It has been 
argued that if the officers give their best years to develop- 
ing a society they should be entitled to compensation for 
the value of the insurance which is transferred to the 
books of the reinsuring organization. This is a just 
claim insofar as an officer's continued services are con- 
cerned, but the right standard of thinking on the subject 
has decreed that officers do not own the members, and 
they should not be permitted to trade them as chattels. 
If an officer can be of further service to his members 
after their reinsurance it is perfectly proper for him to 
become identified with the merged organization at an 
adequate salary. But the practice of selling a member- 
ship and retiring with the spoils has no justification in 
ethics and right business conduct. 

Reinsurance of fraternal benefit societies by old-line 
insurance companies should be opposed by all friends of 
the system for the reason that the members taken over 
by a company lose their fraternal and social benefits. 
Such deals are rank commercialism. While commercial- 
ism has certain merits and is proper in its place it should 
not be permitted to destroy f raternalism. When the old- 
line companies began to develop group insurance in 1912 
it was charged that their intention was to reinsure fra- 
ternal societies and the outcry from all over the country 
was so vigorous that the companies were forced to an- 
nounce that they would not seek to absorb societies. If 



SUCCESSFUL OPERATION 219 

the companies were permitted to extend group insurance 
to this field the fees and bribes which they could pay 
would be so attractive that they might undermine the 
whole system. True fraternalists should always be on 
their guard against group insurance because it holds 
possibilities for the destruction of fraternalism. 

A method for conducting mergers of societies is out- 
lined in the New York Conference Law. It has gener- 
ally been observed. But there are so many points in 
correct mergers which were not covered in this law that 
committees representing the National Fraternal Congress 
of America and the National Convention of Insurance 
Commissioners in 1917 drafted and approved a model 
merger bill for presentation to the various State legis- 
latures. So far it has made little progress, but insurance 
commissioners have attempted to supervise consolidations 
upon the principles which it emphasizes. 

Cost of Management. When the assertion is made 
that sound life insurance costs just as much in one kind 
of organization as in another it is but partially true. We 
have heard this statement many times in recent years 
in comparing fraternal protection on adequate rates with 
the insurance offered by old-line companies. Those who 
talk in this manner attempt to create the impression that 
by the adoption of adequate rates a fraternal society takes 
on the characteristics of a commercial company and that 
in the end there is but little difference. But they forget 
the social and fraternal features, the relief and visitation 
of the sick and the higher ideals of a fraternity. They 
also forget that the cost of managing a fraternal benefit 
society is many times less than the expense of conducting 
an insurance company. 

The reports of societies and companies to State insur- 



220 FRATERNAL INSURANCE 

ance departments show the amounts paid for running 
their businesses and comparison of almost any of them 
will bear out the truth of the above statement. The cost 
of doing business by an old-line company is tremendous,: 
compared to the same item in a fraternal society's report. 
This is but a showing of comparison, however. The 
expense item of a commercial life insurance company 
might be just and equitable; it might be the irreducible 
minimum upon which it can do business. If such is- 
the case a fraternal society of approximately the same 
size is managed with the most stringent economy. The 
expense item of the society, however, might be the just 
standard. In that light the management of old-line com- 
panies is wasteful and extravagant. 

The difference is explained in the methods of obtain- 
ing new business and administering the affairs of com- 
panies and societies. In the first place the salaries paid 
to executives of old-line companies are princely in com- 
parison to the compensation of officers of the societies. 
The offices maintained by the companies are more elabo- 
rate, the habits of the executives are more extravagant, 
and various items creep into the expense accounts which 
are kept out by fraternal society officers. And the 
agencies require a greater outlay of cash. It is true that 
the old-line companies write a greater volume of busi- 
ness because they put more money into their agencies 
but the larger volume of business is not commensurate 
with the cost over that of the fraternal deputy system. 
Consequently the policyholders in their premiums pay 
for higher-priced methods. With expense of manage- 
ment greater in all of these particulars than it is in 
fraternal benefit societies, why should there not be a dif- 
ference in the cost of protection? The author admits 



SUCCESSFUL OPERATION 221 

that there is little difference in the net cost of insurance 
based on reliable tables of mortality, but there is a great 
difference in the cost of administering the various kinds 
of insurances. Every person buying protection should 
take these facts into consideration. 

Why is this difference? Why should fraternal society 
officers work for less than do the executives of old-line 
companies? Why should the societies adopt virtually 
cheese-paring methods in conducting their affairs when 
the companies spare no expense? There is but one 
answer. It is control by the members. The policyholders 
of life insurance companies have no voice in manage- 
ment; the members of societies through representative 
government possess absolute control. The officers of 
old-line companies are answerable to nobody but them- 
selves; the officers of fraternal societies must report to 
their members and stand for re-election at least once in 
four years. This subject appears at first to be merely 
a question of form, but it is in truth the determining 
factor for the difference in cost between old-line and 
fraternal insurances. 

The Deputy System. Even some fraternalists seem 
to think that the deputy system is a recent development 
in fraternal work. But it is not. Deputies have been 
employed for the purpose of organizing lodges and ob- 
taining new members from the very beginning of the 
system's growth. There may have been changes in their 
methods, but the idea of growth through the efforts of 
deputies has been at the very foundation of fraternal 
progress. Dr. James M. Bunn was the first deputy for 
the Ancient Order of United Workman, receiving his 
commission in 1872, and he gave the Order an impetus 
when it hung on the brink between success and failure. 
By his efforts the Society began to grow. 



222 FRATERNAL INSURANCE 

There is a big difference between the methods of 
deputies in the early years and the field work of to-day. 
A. R. Talbot, Head Consul of the Modern Woodmen of 
America, has remarked that in the old days a deputy 
could enter a town, employ the brass band to parade up 
the main street following a banner announcing that a 
lodge would be established in the evening and the result 
would be the organization of a good-sized lodge. Pro-* 
spective members would appear at the meeting of their 
own volition. To-day every member must be obtained 
by solicitation. This makes a deputy's work more diffi- 
cult and more important. The prospect of to-day wants 
to know all about insurance plans and other features. 
He may have his choice of a number of societies and 
he wants the one which offers most. And in these days 
the public rarely subscribes to any enterprise without 
being solicited. 

Therefore the deputy system is more complicated, more 
extensive and more necessary than it was in the early 
years of fraternalism. The field force is usually directed 
by the chief officer of a society, and his efforts and the 
labor of those under him are devoted to conserving and 
increasing the membership. Deputies of to-day know 
more about protection and are more efficient; they work 
more systematically and their compensation is better. 

Future of the Fraternal System. This great protec- 
tive institution has history and experience behind it 
marked by wonderful accomplishment. It has developed 
a plan of operation that serves the public's interests best. 
It has the elements which inspire loyalty on the part of 
the members and devoted leadership by the officers. It 
has readjusted its business and financial plans to meet 
the demands of the future, and its permanence seems 



SUCCESSFUL OPERATION 223 

to be a settled fact. With these advantages why should 
not the fraternal system become the greatest and biggest 
life insuring institution? 

It is fascinating to review the accomplishments of 
the past. Fifty years of experience, of co-operating for 
the uplift of humanity, of correcting the mistakes inci- 
dent to the start, have made men happier and the world 
richer. The three billion dollars of benefits have gone 
where they would do the most good. The money has 
been paid as real protection to the widows and orphans 
of persons who sustained life mainly by their labor. 
Such insurance was not carried for investment, nor did 
it swell accumulated fortunes. It was pure protection, 
purchased at a price as near cost as possible. Then there 
were the benefits from fraternal and social intercourse 
of millions of members, of relief given cheerfully in 
sickness and distress, and movements fostered by the 
societies and lodges to improve the public morals and 
health. 

Thus the fraternal system starts upon its immediate 
future greatly strengthened by experience. Its protec- 
tion has been standardized on an enduring basis. A large 
field of opportunity and usefulness has been opened by 
the adoption of whole family protection, which insures 
the children of members for funeral benefits and trains 
them to be good fraternalists. The system has taken ad- 
vantage of statutory legislation which will place the 
societies on a par with the soundest financial institutions 
and will make their period of usefulness enduring and 
permanent just as long as there are human beings desir- 
ing to co-operate for mutual assistance. Fraternal in- 
surance has reached the point in its development when 
no man or woman need hesitate about taking enough 



224 FRATERNAL INSURANCE 

protection in the various societies to cover all of his or 
her needs. The good solicitor for fraternal insurance 
has discovered that he is selling a sound benefaction, and 
he enters his field with increased confidence. 

The future of the fraternal benefit system has never 
before been so bright. Although the accomplishments 
of the past fifty years have been truly remarkable, it is 
possible to conceive of even greater results in each decade 
to come. Let no fraternalist falter in the progressive 
march. Let not one lose faith in the glorious purposes 
of fraternalism. We should ever remember the words 
of Elizur Wright, the first insurance commissioner of 
Massachusetts, and whose influence in American actu- 
arial science has been predominant since the beginning. 
Years ago he said: "The civilization of this continent 
has no institution of which it has a better right to be 
proud than protection insurance. It is the standing to- 
gether, shoulder to shoulder, of hosts of manly men to 
defend each other's home from that enemy who shoots 
on the sly and in the dark. It is the realization of frater- 
nity without the destruction of independence and in- 
dividuality. It is charity without cant, which enriches 
the giver and does not humiliate the receiver." The fra- 
ternal system stands to-day as the greatest institution for 
writing protection insurance, and Elizur Wright's words 
are just as true in this age as they were when written. 



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